I saw a demonstration of the service. The rep demonstrating the boxes had to select either 720p or 1080i as output. Not sure if there is a pass thru option similar to what is on the rogers box or if you have to have either one and if the program is 720p the box will upscale.
When the technician came to install Fibe tv, he told me to set it at 720p, especially when watching sports or action movies. I told him my tv is Plasma and I have no problem setting my tv to 1080p. I know most LCD tv lag less with 720p when watching sport or action movies.
dobyblue, he might be talking about image processing lag, not pixel response time. It's not unreasonable to imagine that deinterlacing the 1080i signal for display by the LCD might lag a few frames while the 720p could be displayed as soon as each frame is received. Of course this only matters if the audio is not delayed to compensate, which might happen when you're using a home theater setup instead of the TV speakers. It also affects gamers, which is why some TVs have a "game mode" to disable as much image processing as possible to reduce the lag.