I guess the reason why the difference between 720p and 1080p isn't so indistinguishable yet is because of the lack of 1080 sources and a predominance of 720p displays in the market.
10 years back. It was easy to tell the difference a DVD, a Laserdisc and a VCD. visually. Technically, the VCD does 240 lines, Laserdisc displayed 425 lines, while the DVD did 480 which was the maximum a standard definition
The number of lines matter. Ideally, you have to negotiate the marriage between your source and your display without interpolation and allowing each other to display pixels at native resolution. But like all marriages, you'd have to live with compromise which has a lot to do with scaling.
The 720p display I believe is the compromise product because it falls perfectly in between 480 and 1080. Your DVDs will scale to 150% more, and HD sources will be 150% less. That is why DVDs still look good, and HD sources no different.
For a DVD to be shown on 1080 display. It has to be scaled and interpolated to 225% its size. Even with the best processing, it obviously won't look that good compared to a 720p display of the same screen diagonal.
In digital photography people argue a lot about megapixels saying the same that a 3 megapixel picture is no different from an 8 megapixel picture. If the prints are on 3x5, you can hardly tell, but as the prints get larger (poster to billboard size) megapixels do start to matter.