I just still don't understand about the p and i.
Progessive scan and interlaced scan are very difficult concepts to get, but what you need to understand is that what you FEED a plasma is different, almost always, than what it displays!
An analogy: Your TV speaks English (native resolution/language)
Your TV understands French, German, Greek, Spanish, and English (compatible resolutions/languages)
Before your TV can show the French stuff, it must first be converted from French (1080i) to English (1024x1080).
Obviously, the best translation will be if you feed the TV English to begin with!
#2: All digital displays including plasmas, LCDs, DLPs, LCoS, etc. are progressive scan. 1080p is defined as 1920x1080, typically at 60hz, so a 1024x1080 display is NOT 1080p, nor is it 1080i, it is 1024x1080 progressive scan, which can be shortened to 1024x1080p. Without the leading 1024 it is not accurate. It is also VERY inaccurate to call it 1080i or 1024x1080i.
Is this TV simply incapable of progressively scanning at 1080?
At 1080 what? You can't just say 1080, because that means nothing. This TV displays 1024x1080 in progressive scan. But, as said above, 1024x1080p is not 1080p which is 1920x1080p at 60hz.
Does it 'scale-down' a 1080p signal to 1080i?
Read on this form the languages it understands:
http://www.hitachi.us/tv/browse/plasma/pdf/42HDS69.pdf
You will see that it accepts 480i, 480p, 720p, and 1080i... It does not accept 1080p at all. So, of the languages I listed above in my example, we can call 1080p Latin - and since the TV doesn't understand Latin to begin with, it has no way to translate it to English (1024x1080p).
All things being equal, will 1024x1080(i) be significantly different that 1024x720(p) for a 42" or 50" at 8 feet away, and assuming an upscaled DVD 1080p feed?
All things being equal, then the greater resolution tends to be better.
But, since NOTHING is typically equal, and displays have vastly different video processing and build quality as well as black levels, motion handling, color accuracy, etc. it is impossible to say which of these two displays will be better.
One thing is for sure: If you use a cheap upconverting DVD player, then you might as well not buy a new display because the processing of the DVD player will screw up the movie royally to begin with. You do NOT want to upconvert DVD to 1080p unless the player is going to do a top notch job with the conversion and the display will properly work with 1080p. Many LCD displays will do this, almost no plasmas will. Very few DVD players do a good job upconverting DVD, and I'd rather spend the money on HD discs such as HD DVD or Blu-ray in a second over upconvering DVD.