Resolution is important but image quality does not equal resolution. For example, on many games for the PC, I turn on anti-aliasing. I maybe running at a resolution of 1280x720 but jagged lines in areas such as fences or around characters doesn't make it look very nice. Anti-aliasiing can go a long way into cleaning up and creating a better picture.
With Microsoft's insistence on having a game not called Halo
or Modern Warfare
(to name a few) run at 720p, some developers were running into performance problems when implementing 4XMSAA. Well, David Jefferies of Black Rock has a quick blog
on this item and is happy that Microsoft is dropping the 720p requirement on future games so that he can do both a high quality picture using anti-aliasing as well as keeping up on performance.
For me, image quality is more than just how high of a resolution you run the software. As you get higher resolution, anti-aliasing does become less and less important since pixels become more tightly integrated. Still, at the more common resolutions today anti-aliasing does help a lot and I'd rather have a game at a lower resolution than 720p be AA'd than one running at 720p with little or no AA.