Actually, at 40", you have to be sitting more than 6 feet away to notice any difference between 720p and 1080p. There is a pretty decent chart here that gives a viewing distance vs. Screen Size comparison.
For the money, and the quality, very few TVs touch the Samsung LN-T4665. 46" 1080p/24 Hz. It is down to about $1500 now, which is an absolute steal for a TV this great. They have their 120 Hz version out now, LN-T4671, but it is still way too expensive for the average consumer.