So I'm playing Oblivion on my new laptop in 1080p on high with AA and things runs decent (prob on par with 360 version) and I try to fiddle around with settings and turn the resolution down to 720p and now the game looks like somebody smeared vaseline on the screen.
It's as bad as going from 720p to 480p

I checked out Diablo 3 Beta and sure enough same effect going to 720p.
Is this because the screen native rez is 1080? Or because my eyes are now used to gaming in Full HD and HD Ready just doesn't cut it?