On a side note... An MvP mentioned upscaling on the console would cause peformence issues? No... Not something as simple as that it's a tiny amount of data for a GPU to smash through it does 100X the math every frame for 3D processing a simple algorythm is nothing.
I've also tested this with my xbox360 and it runs exactly the same in 720p or upscaled to 1080p.
The Xbox 360 has a hardware scaler built in. For systems like the PS3 which have to do it in software, there is a performance hit.
Yeah the Xbox360 uses a custom Nvidia Geforce 7000 series video card which simply doesn't support 1080p (Hence the dedicated upscaler hardware that TheTias mentioned). PS3 (and PS2? Or is that also an upscaler?) can achieve 1080p though, but at dramatic cost to performance so you usually see it in games that don't feature huge draw distances or complex graphics.