No, it is. From your first post, you want Blu-Rays output at 1080p, but DVDs upscaled to 720p. No you can't do that, you would have to change in between watching each type of disc as if you have set to 1080p, Blu-Rays will play as normal, but DVDs will be upscaled to 1080p, and if you set the output to 720p, Blu-Rays will be downscaled to 720p, but DVDs will be correctly upscaled to 720p.
I guess the question is, what are you trying to achieve? If your most important priority is DVDs, set the PS3 to 720p and, since the projector only displays 720p, this will be okay for Blu-Ray as well. However, are you sure the projector's resolution is actually 720 horizontal lines? Most are 1366 x 768 which means they are actually still upscaling a 720p picture to fit their screen. In that case, I've found personally setting the screen to 1080p and letting it downscale this instead produces better results (certainly in the case of the PS3).
As always, it's best to play around yourself and find out what you think the best results are, rather than just trusting others.