The difference between 720p and 1080p is only noticeable if you go above 42 inches. Otherwise, it's a waste of pixels. For your situation, a 32 inch TV is pretty much perfect. The only drawback is that you won't be able to watch blu-ray or play certain games in 1080p, but they still look very good on a 32 inch.
Are there any specific televisions you're looking at right now? Is there a specific price point you want to meet?
I should also mention that when looking for an LCD, refresh rates should be something you want to take into account. You don't want a slow LCD because it can ghost some of the faster moving objects in the game.