I don't believe that is entirely accurate. I am using just the component cables for the xbox. I'm not using the old HD box. Even Microsoft eventually offered a direct component cable option. And as you mention, when connected the xbox dashboard does have a setting that will allow you to enable HD resolutions.
My xbox is softmodded with XBMC and is setup to support 1080i, 720p and 480p resolutions.
I use it to run CoinOps and Visionary emulators which run at 720p if supported...
Now with that said, I've got a couple monitors that I've played around with to test this board and one of my monitors is a Dell 24" widescreen that does have direct component input and at 720P it does look sharper than running 720p through this VGA converter and going into the monitor via d-sub/vga. However it's still considerable better than any other option like s-video or composite.