I think the native resolution of the signal coming out of the ATV is 720p. Obviously, the ATV will upconvert to 1080p if you want it to. Your TV will also do this. So - it depends on which device is better at the upconversion.
I also have a 1080p TV, and it's really not much different, but I get a slightly better result setting the ATV to 720p and letting the TV do the work. But different TVs have different conversion circuitry, so try them both and see what looks best for you.