As I understand it, "i" stands for interlaced, which means the screen redraws only half of the lines on each pass (half the "old" scene and half the "new" scene are interlaced to create a whole picture). It's not that the lines are stretched or filled in, but the screen draws all the even-numbered lines on one pass, then all the odd-numbered lines on the next pass. "p" for progressive means the screen refreshes every single line every single pass (each line is drawn progressively). Thus, 1080i looks less sharper than 1080p because you're getting a mix of the "new" and "old" pictures on the screen. This is why 120hz screens are a big deal, as well, because the faster the TV redraws the scene, the sharper the image appears.
Even if that's not entirely accurate, though, upscaling is the key. A lot of PS3 games only offer up to 720p (which is a bit better than 1080i, though probably not noticeably (in fact, a lot of places simply equate 1080i to 720p)), where the 360 versions claim to offer 1080p.
The trick is, the PS3 version is (as I understand it) often honestly rendering the game in 720p, where the 360 version is rendering it at a lower resolution and then digitally converting the picture to be 1080p. It's the same idea as upscaling a DVD; the picture will look better than without the upscaling, but not as good as a true HD picture like from Blu-Ray.
It seems extremely likely that Skyrim will be rendered at 720p on the PS3 version, so if that kind of thing concerns you, that's the better version to buy. The perceived inferiority is just marketing.
