HD newbie help

[Neo]

So I finally bought an HDTV - It's a 40" LCD Sony Bravia. I was going to get the 42" LG, but I changed my mind at the last minute because the Sony looked a little sharper. Anyway I hooked up my 360 using the component cables and loaded Gears of War but it doesn't look quite right. The environments are fine but the lighting on the character models seems messed up. There are these little white flecks that really stand out and make the image look not natural. When I changed the 360 output from 720p to 1080i it seemed to help a little but it still looks strange. Is that the way it is supposed to look or am I doing something wrong? Also, should DVDs be played in 720p or 1080i?

Regular TV looks like crap at the moment because I realized that my time warner box doesn't have HD output. I'm guessing I have to subscribe to their HD service first before I can get the box with the HD outputs.