My good ol 32 inch HD ready does that aswell. If I set it to 1080p SOMETIMES it gives me picture and a message at the top right saying 1080p. Other times it dores the same except with a line dead centre down the middle as if trying to display 1080p but struggling.
Bottom line I think if its an HD ready tv then 720p is the best and safest route. Even if an HD ready tv is appearing to display 1080p I wouldnt risk damaging it in future just incase because I doubt that there was a manufacturing error so big that a 1080p panel was inserted instead of a HD ready panel. More likely the error would have been a manufacturing fault where they left out some sort of feature that stops itself from forcing display resolutions that it cant handle.