In spring of 2007, they will replace the current 90nm CPU in the xbox 360 to a 65nm SOI CPU. Which will hopefully reduce the heat inside of the xobx360.
As every game until then was built without 1080p support in the console, they will all be upconverted from 720p by the Xbox 360. Future games can be built to support it or simply allow the box to upconvert. Same goes for other content.