I would like to know what kind of TV you are using before I can give you some advice. Yeah, that really does suck since my TV doesn't have a VGA input, so all of my DVDs are at 480i. I really wish that Microsoft would release a HDMI cable for those of us that bought the original 360.
Yes it does. I would go with the VGA cable and get a HD DVD add on drive for your 360 as that way you get Upscaling DVD player that also plays a next gen video format all for one, relatively, low price.