Personally, I have a 37" 720p LCD from which I sit exactly 10'. I can't tell the difference from the couch between OTA HD picture and the picture that my $98 upconverting DVD recorder puts out, though I can see a difference between Dish HD and OTA HD if the conditions are right. So for me, it's not the resolution, but artifacting that makes the difference. On that same $98 upconverter, I can see a clear difference between Dad's Superbit The Fifth Element and my $5 "Special Edition" Walmart copy, which reinforces the above assessment. I guess my visual acuity is on the poor end of the spectrum, but my sensitivity to seeing artifacts is excellent. Trying to watch Dad's analog cable on his 37" 720p TV from 6' away is almost painful.
A buddy brought over his PS3 one time, and we watched a couple of Blu-ray movies. The picture was very good; better than SAT and upconverted DVD, but not worth the $150 hardware and 70-ish movie titles I'd have to replace to go Blu. I also never see a time when I'll be installing more than 5.1 speakers, or spending more than $1000 total on a sound system, so the advantages to the new audio codecs and 7.1 channel sound are also lost on me.
Some day that TV will be a 50" plasma, but neither it nor the couch are moving, so theoretically there's still no need for me to buy a 1080p set if there are still good 720p, 96Hz sets on the market. Give me low resolution, but high bitrate, and I'm a happy dude.