My prior Dish HD receiver, an 811, did a terrible job of scaling 1080i to 720p for my 720p Sammy DLP HDTV, so I always left the 811 set to output 1080i and let my Sammy do the conversion. Now that I have a 211 and a 222, I still leave them set to output 1080i to my two 720p HDTVs. I tried the 720p output and it was better than the 811's 720p output. But, on most HD channels, the picture still looks better using a 1080i output from the Dish receivers. I made some sense to reset the Dish 811 receiver to 720p when I knew the native signal was 720p, but it was a hassle so I just left it on 1080i. With the new receivers it is even more of a hassle to change output resolution as needed or desired, so after a couple of tries, I gave up on that idea.
If your HDTV is 1080i or 1080p native, then set the Dish receiver's output to 1080i. If your HDTV is 720p native, try both and see which you like better for PQ. Use HDNet for a 1080i cable channel for the test and your local ABC channel or ESPN for the 720p test channel. Most of what Dish is providing in HD is 1080i and most good HDTVs do a better job of scaling that 1080i output to 720p than do the Dish receivers.