1080i is fine.
Look at the resolution standards for video - they are 480i, 480p, 720p, and 1080i. That refers to the number of lines of resolution 480, 720, and 1080. The 'i' and the 'p' at the end refer to interlaced or progressive scan signals. You can google that for some good explanations.
Basically the set takes any format and converts it to 1080i - which for rear projection CRT is pretty typical these days. There is also a good chance that the display does not accept 720p, which is really stupid, but really common in rear proj. CRT.
Take a look at the Mitsubishi models also, but the Hitachi should be fine.
Yes, you have the HDMI connection idea correct. Video & audio are on the HDMI cable, but you just will be using the video portion, so hook toslink or S/PDIF up to your receiver for digital audio.