Just want to clear something up, if it hasn't been already cleared up. There is no color loss when switching to 1080i output... what this user experienced is how each TV uses different settings for each output (ie: 480i, 480p, 720p, 1080i all have their own individual color, contrast, brightness, gamma, settings).
For instance, I can have my HDTV ISF calibrated for 720p, and not 1080i, and when I use a 720p source, everything looks great, and when I use a 1080i source, it looks like shit (because it's not calibrated). Each setting on a TV needs to be calibrated.
It can get even more problematic than that, sometimes it can also relate to the physical connection (ie: component, composite, s-video) and so each setting on each connection would need calibrated... ie: 480i on composite, 480i on s-video, 480i on component, etc. etc.
So anyway, the color loss was his display's fault, not because of the X360's 1080i output. If your TV has correct 1080i settings, the X360 will look every bit as good and accurate as it does at 720p.