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I agree with the TV salesman that you really are not going to notice the full improvement from 720 to 1080 for regular programming. The real advantage of the 1080p is when you are watching HD DVD and the Blu-Ray discs. This would go along with your thinking in ditching the VCR-DVD and purchasing the Blu-Ray unit.
So to answer your question, the upgrade would be noticeably better and well worth the cost if you are going to be watching HD DVD and Blu-Ray discs. On a side note, I just purchased a Vizio 47" 1080 HDTV and the picture resolution compared to regular programming is excellent.
Im sure that you will pleased with the resuls if you upgrade as planned.
Feel free to post any follow-up questions you may have.
You will see a definite improvement by upgrading to the Blu-Ray unit. The 720 is actually very good for the 32" size screen you have. It may be worth purchasing the Blu-Ray unit and seeing how it performs with your current TV. You may be happy and not need to purchase the 1080.