tigerhonaker,
I have a 92" screen and a 1080p projector about 14 feet from my screen. My projector up converts everything to 1080p as currently configured. The difference between DVD and Blu-ray is dramatic, both in video and audio. Now 1080i and 1080p is just de-interlacing. Another issue is frames per second. Many players use a "3:2" algorithm to take a 30 frame per second video transfer to approximate a 24 frame per second movie original. Others, like mine, display at an actual 24 frames per second. Ability to process the up-scale is another variable. My Oppo blew away my PS3 as a processor, but I have no doubt a Wolf Pro Scaler would blow away my Oppo. Set-up geometry also matters - a high res display can look better or worse depending on how close you are sitting to it and what your viewing angle is.
So, like audio systems, the answers to your questions are "it depends." Generally, however, I think my answers are like Bart's and Ivan's above:
1) Blu-ray beats DVD and
2) If your display is large, higher resolution is better.
For getting started, I would buy an Oppo 95 Blue-ray player and a projector that can up-scale to 1080p/24.
P.S. Do not forget that Blu-ray will display in letterbox format (black bars). This drives some people crazy, especially wives. The Oppo has a "zoom" feature that allows the image to expand to 1.2 of original (among other choices), which allows a movie filmed in widescreen to use most of a 16:9 screen without losing the edges like "pan and scan" does.
P.P.S. Ask any questions you want to here. We were all new at this at one point. I learn something new here everyday.
