My Panasonic TX-32LXD52 32" LCD is now some years old, but as it’s described as ‘HD ready’ I assume it should be capable of 1920 x 1080 resolution.
When I switch on my WDTV Live (to view video wirelessly from my my XP PC) I sometimes briefly see at the screen’s top left something like ‘1080p’. Yet when I go to the WDTV settings the only option is 720p.
I viewed the Panasonic settings but saw nothing relevant there.
What are you looking at to get only a 720p option. It may be that on auto HDMI you get 720p but you should be able see a 1080i option in the WD HDMI setup menu.
720p should be fine for your tv.> (you won’t see much (or any) difference setting 1080i output on the WD TV Live as it would get downscaled on your 1366x768 tv native resolution anyways)>