My tv (a toshiba 50hdx80, from 2002) doesn't seem to have an internal scaler, at least that I know of. When I used native, the 480i and 480p looked a lot more blocky. My tv says that it does not support 720p, although I can see a 720p picture. It looks better than 480p, but doesn't look nearly as good as 1080i. I don't think I have ever seen 720p on a set that is supposed to support it. Hopefully, it looks a lot better than it does on my tv.
So in effect, I let my HR20 do the upscaling to 1080i only and turn native off.
In addition to whateveryone else has said, one reason you would likely not want to do 1080i on 720p material is 720p contains 60 full frames of data every second while 1080i includes only 30 frames per second (really 60 fields per second), so you would likely be loosing picture data.
At the end of the day it really just depends on what looks best to you, but remember to make your decision based on not just one channel - try 480i, 720p, and 1080i content with Native on and then with hard-coding to specific resolutions to see what looks best.
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