Of course a lower resolution at a fixed Mbps rate is going to look better than a higher resolution at that same Mbps rate; who do you think you're fooling with that kind of comparison? Following this logic, SD quality @ 2Mbps looks better than 720p at 2Mbps, or 320x200 quality at 500K looks better than 720p at 500K. Both SD and 320x200 will have less "artefacts" than 720p if we cap the resolution so that these even-lower resolution files look OK vs. 720p. Should we all compromise to 320 x 200?
It's good that you're happy to compromise... especially since it works out that your compromise just happens to line up perfectly with what Apple is delivering. That makes it very easy for you to buy exactly what Apple is selling and get exactly what you want out of it. How convenient!
Consider though, that had this little box had 1080p hardware in it, you could still get every bit of the exact same experience, still download 720p files, just like you can download SD versions instead of 720p now, etc. AND those of us who were hoping for a little more (than 6 more frames per second over what the 2006 version could do), could have got what we wanted too.
Most simply: a 1080p capable box would have given the "720p is good enough" crowd everything they're getting now, exactly as they apparently like it now. And the "1080p or bust" crowd could have also got what they wanted too. Even Apple would have won by getting to sell more units to both camps.
You wouldn't have been forced to download only 1080p content and thus have the Zune download experience again, anymore than someone with a broadband connection slower than yours is forced to download only the 720p version now.
Why is it that in this one thing from Apple, all these people are so quick to argue "less is more" yet we all want the latest & greatest in our Macs & iDevices. It's especially puzzling where in this particular thing- 1080p- it is easy to see other little comparable boxes with 1080p selling for < $100. If they could do it, so could Apple. Why do we have to come up with all these justifications for why it makes sense that we're paying just as much as other set-top boxes and getting less hardware capability for that money?
Lastly, while I'm not President of the "1080p or bust" crowd (and I do own a couple of

TV's myself), I would bet a good number of the 1080p'ers would have been happy to pay up for the 1080p version, even if that was all that differentiated it from the 720p MAX version. Personally, for my own applications, I could care less about download speed, file sizes & storage, internet bandwidth, "the chart", etc. I'd just like to have something as iTunes-connected as the new

TV capable of 1080p playback like other little set top boxes from Roku, WD, etc.