http://www.engadget.com/2006/11/16/ps3-doesnt-do-1080i/
They might be able to fix it in software, but it must be another kick in the nuts for those early adopters and there HDTV that doesn't do 1080p but is supposed to support 1080i.
In other news the PS3 also apparently doesn't upscale DVD content, where as the 360 does.
It appears it doesn't upscale much of anything. if it doesn't match the mode, it'll give you a crappy 480p or even 480i mode.