1. 1080p on a 42" HDTV looks very good to me (from a 1m distance), while it will certainly look blokky to others.
2. Haven't tried this myself, but might be an interesting monitor:
BenQ GW2760HS for £216
It was on my wishlist for a long time, but BenQ goofed around too long with the release, so I lost interest and bought the HDTV. But if my HDTV suddenly broke, the GW2760HS would be the next contestant. Or maybe the
Philips 278G4DHSD, which has the Ambiglow feature and features passive 3D. Unfortunately it doesn't have a non-PWM backlight, like the BenQ has. Then again, I might just roll with another HDTV.
In any case, read this, it's a post of mine from another thread, which discusses the resolution vs. size -madness:
http://forums.overclockers.co.uk/showpost.php?p=24963901&postcount=16
Another post from the same thread:
http://forums.overclockers.co.uk/showpost.php?p=24968513&postcount=20
And another:
http://forums.overclockers.co.uk/showpost.php?p=24973920&postcount=24
Actually, I'd recommend you read the whole thread, it's not that long.
http://forums.overclockers.co.uk/showthread.php?t=18541767
edit:
Aagh, just noticed that the HS version is out of stock. You could try your luck with the no-frills
GW2760 version, which apparently lacks HDMI and has a larger bezel, but also comes at a cheaper price of £164 (this week only -offer).