At 32" you will see less of a difference between 720p and an equivalent 32" full HD 1080p screen, so not being Full HD is less of an issue. You will still see an improvement between DVD and Blu, so the Blu Ray is worth the investment in my opinion. Remember it's not just about the picture, the sound is also much better. If you have a surround system then all the more reason to go Blu Ray for HD audio.
Like I said, I noticed a big difference in sound quality going from my Sony upscaling DVD (costing £300 at the time) to the Panasonic BD55 even just using my Toshiba TV's speakers. There are new Blu ray Players on the market from Sony, Panasonic and plenty more at the higher end, don't let the size or resoultion of your screen put you off. You will experience a difference. Take a look yourself, there are still plenty of HD ready sets on the market, you should be able to get a demo of Blu Ray on an HD ready set.