Texas go with the larger screen rather than the higher resolution. I've owned several HD's and resolution is far less important than all the other elements that make up picture quality.
Here's a personal example: $2500+ Sony XBR 1080p LCD vs a $1000 720p Panasonic Plasma. The 720p Panny is noticeably better looking even though it is lower rez.
You will definitely notice the difference in screen size, but unless you're directly comparing sets and looking for it you really won't notice differences in resolution much (unless you're really to close to the set).
Read reviews, but base your decision off of image quality first.
Here's some links for you
http://reviews.cnet.com/720p-vs-1080p-hdtv/
Whether you're dealing with 1080p/24 or standard 1080p/60, doesn't alter our overall views about 1080p TVs. We still believe that when you're dealing with TVs 50 inches and smaller, the added resolution has only a very minor impact on picture quality. In our tests, we put 720p (or 768p) sets next to 1080p sets, then feed them both the same source material, whether it's 1080i or 1080p, from the highest-quality Blu-ray player. We typically watch both sets for a while, with eyes darting back and forth between the two, looking for differences in the most-detailed sections, such as hair, textures of fabric, and grassy plains. Bottom line: It's almost always very difficult to see any difference--especially from farther than 8 feet away on a 50-inch TV.
http://www.avsforum.com/avs-vb/showthread.php?t=768167
The independent experts all tend to agree on this point.. 1080p is just about the least important factor in picture quality particularly if you are seated outside the physical boundaries where our human eye can no longer discern the resolution differences. This is a sliding distance scale which depends on screen size in relation to seating distance... ...Color accuracy, contrast, black levels, scaling/processing all come before resolution in importance.
Hope that helps.