Your monitor is not 1080i. That is the highest resolution it can accept as input. All HDTVs have a fixed resolution, are progressive scan, and will deinterlace (convert to progressive scan) and scale if necessary.
If you set the dvd player to interlaced it will output 480i. The TV will deinterlace it to 480p and then scale it to its native resolution.
If you set the dvd player to progressive, the dvd player will be doing the deinterlacing to 480p. The TV will still scale to its native resolution.
Which setting you choose on the dvd player depends on whether the player or the TV does the better job of deinterlacing and the only way to tell is to try it both ways. There probably won't be much difference and I'd use the progressive setting on the player.