Horribly misinformed? I prefer the term "technologically ignorant."
Actually, I think it's a simple mistake on my part, which I will now own up to. My comparison was a 1080i picture on a 1080i set, I've never tried to watch a BD or HD-DVD outputted in 1080i on my 1080p TV - maybe it is fine, like you say. In actuality, I'm asking these questions because I'm highly tempted by a sub-$100 HD-DVD player, if I could ever convince my wife to let me get it.
However, I think my point still stands to a certain point. If people are buying 1080i players because their TV won't do 1080p, they're not getting the full benefit and may not see the need to spend twice as much for an HD-DVD vs. just getting a regular one and upconverting it.
No, I don't have Bose speakers, and I sit about 10' away from my set.