1080p with Blue-ray?

I have a 1080p TV but my Bell PVR lets me set for 720p, 1080i etc.but not 1080p.

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Perhaps your Bell PVR isn't equipped to handle (input or output) 1080p.

1. When I watch a Blue-ray DVD is it then automatically playing on 1080p or because I have used the PVR to set at 'max' 1080i is this what it is 'converting' up to?

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A. It's Blu-ray, Blu-ray disc or BD, not "Blue-ray DVD".
B. Your BD player should be connected directly to your TV, in which case the PVR has no bearing on anything.
C. In your BD player's menu, set the video output to "AUTO" if you want the player to output the native resolution of the disc. If you want your player to only output 1080p, regardless of whether your playing a Blu-ray disc or a DVD, set the video output to "1080p" (so that the player will upconvert lower resolutions to 1080p).

2. If this is the case should I be changing the TV when watching Blue-ray to1080p and how is this done?

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You can't change the TV's resolution. The TV will display 1080p. The owner's manual will tell you which INPUT resolutions the TV can accept.