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OK, so next question is, is native resolution important?
It depends how far away you're sitting. You won't tell much of a difference after about 8' away (if you have good eyesight).
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So, does "resolution" mean "native resolution"? If so, is there any degradation in picture quality if you "convert" from a resolution that is not native?
We all know what resolution means, and the word can be ambiguous; it can either be describing the resolution of a signal or the display device. When you see "native resolution," you know they're talking about pixels on the display device.
Converting has to be done with a video processor. Good video processors do a fine job of scaling down images, and you would be hard pressed to actually notice any degradation. Upscaling is different. When the amount of information provided by the original signal is less than the native resolution of your TV, the video processor has to guess how to enlarge each frame.
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For example, I understand Blu-Ray is 1080p. If I play Blu-Ray on TV A, will there be any degradation in picture quality compared to TV B? If I play a standard 720p DVD on TV B, will there be any degradation in picture quality compared to TV A, due to converting from native resolution?
I wouldn't say you would notice any degradation on the 720p television (TV A). In other words, the downscaling of the 1080p to 720p would basically look the same as if you were simply playing a 720p signal on the TV. That said, the picture would probably look (slightly) better on the 1080p TV just because it has the capability of displaying the entire 1920 x 1080 resolution.
Also, standard DVDs are not 720p. They are 480p. So, both televisions would have to upscale the standard DVD signal (or if you have an upscaling DVD player, the player use a built in processor to do this). Either way, you're still upscaling and you will notice the ill effects of this procedure. It should be noted, however, that usually the DVD's 480p signal will look quite a bit better upscaled than a standard definition television signal, which is 480i.
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Why does TV B say "conversion" as well as "direct input" for 1080p?
I'm not sure. Maybe it's just saying it accepts signals from an upscaling DVD player or a stand alone video processor, which some people have.
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The 2 TVs are Panasonic TH-42PX75U and Panasonic TH-42PZ700U, both 42" plasmas, at $1,300 and $1,800 respectively. The $500 price difference is essentially what I described. Is it worth it?
As I said earlier, it depends. How far are you going to be sitting from the screen? Also, I said 8' is my cut off point where I can't tell a difference. Well, that was for a 50 inch plasma. Honestly, you would have to sit very close to the TV to notice much of a difference between 42' plasmas. Generally, I would say it is not worth it to jump up to 1080p on anything smaller than 50'. Most importantly, however, is which looks better to you.