While I'm not really aware of the technical reasons behind why it's different, I don't think component video (YPbPr) is the same as RGB. What you have are component cables, not RGB cables, despite the cables also having red, green, and blue connections. RGB analog component video (Common in Europe, barely present in the United States) and YPbPr analog component video (What we're all used to for modern game consoles) aren't the same thing.
What's set to 720 either way? I assume you mean 720p? The most the PSP will output (Although maybe modders can hack it to output something at hd, I wouldn't know and don't care) to a television is 480p, and only with the component cables (Or D Terminal in Japan). The composite cables will only do 480i.
I'm surprised you don't see a difference on the 360. I've ran my 360 for a while on a SDTV using composite and component. I thought component was a vast improvement, even though it was just at 480i. The 360's composite output seems to be the worst I've seen in years, I don't think any real attention or care was put towards that since the 360 is designed for modern televisions. Was a very poor quality signal that wasn't pleasing to look at at all and would give me headaches after a while.
Edited by Atariboy, Sat Nov 28, 2009 9:56 PM.