Whichever you prefer is bad advice in this scenario IMO. 1080i is 1080 lines, interlaced format, of video information. If you have a 1080p display (as suggested in the post) then anything other than 1080i output for your HD channels is throwing away a LOT of resolution. It is relying on the Sky HD box to deinterlace to P (which only the cheapest, nastiest displays can do a *worse* job of), then it is downscaling to 720p (loss of resolution therefore detail) and then your TV is upscaling back to 1080p again (interpolation based on a signal that has already suffered a loss in detail, thus any detail remaining is effectively smoothed out a little further). I think this is less noticeable to new users of HD because HD is just so much better than what we have had before. But trust me, once your eyes get attuned to it it becomes easy to see where just setting the box to 720p softens out detail, and introduces visible scaling and deinterlacing artefacts
I would advise AUTO or 1080i. In either case, with a HDMI connection, your Sky box will always be deinterlacing SD channels (going from 576i to 576p). So the only difference between AUTO and 1080i on SD channels is that the Sky box is also doing some upscaling, and that the TV is going to have to deinterlace again. Usually this means AUTO is better as it is less processing steps, and displays nowadays are at least getting much better scaling algorithms in them.
However from a purely functional/ergonomic point of view, AUTO will blank the image for a few seconds as the new resolution is output and the display must resync. This can be an annoyance to some.
Excuse long rambling post!! Long story short AUTO or 1080i. I can almost say with confidence NEVER 720p. Even with 720p or 768p displays, if they accept 1080i they can probably do a better job than having the sky box deinterlace and downscale then have the display potentially upscale a little again (to 768p).