For someone with 20/20 vision (1 arcminute spatial resolution) and a 42" screen, the difference between a true 720p panel and a higher res panel should be noticeable from 8 feet and closer (if one knows what to look for).
With 1024 x 768 panels becoming more common: Someone with 20/20 vision should be able to perceive a difference at 10 feet between 1024 x 768 screens and higher res panels.
The difference is more visible with slow-moving text and other high contrast material. With video that has smooth gradations, it is far less perceptible (and even if you see the difference, it may not bother you).
The resolving power of the eye is higher than what most people think. It's just that different people process the visual data differently. It's best to compare for yourself.