Blu-ray resolution sizes on PS3 & 720p/1080i LCD TV

[bigwillie]

Hi all
I'm new to this and need to ask something which you've all probably been asked a million times before. However, I've done a fair amount of research into the issue and remain confused...

I'm thinking of buying a PS3 for my young son and want to make the most of the Blu-ray player. My Toshiba 32" LCD TV (small I know!) supports 576p, 720p and 1080i resolutions. I have been told that the (older, at least) PS3 models did not playback 720p and downscaled to 480p when 1080p was not available.

Will the newer model PS3's play Blu-ray discs in 1080i/720p resolutions? And will the difference in quality be much of an improvement over my Samsung 1080i upscaling DVD player? I'm in the UK and will be buying the 40gb PS3 (unsure of firmware). Oh! and I intend to use a Quinex HDMI cable.

Many thanks in advance and apologies if I'm not making much sense.

Bill