:P
120 hz screen will give you 1080 with that frame rate. Given that at 60fps, each frame lasts les that 0.02 seconds, and ourreaction time is in the order of 0.25 seconds, those extra frames really only help things look smooth, and a half deceng120/240hz HDTV with motion flow or similarprocessing will make the 1080p60 look as smooth as silk by not only doubling or quadruplin the frames, but also doing some inbetweening to smooth any motion. After 60-120 fps, anything more can really onlybe seen using an onscreen fps meter.
The game itself has two rendering modes, if you set the PS4 to 720p then the game may be rendering at 1080 and then the PS4 is scaling to 720. You'll be far better off leaving the PS4 at 1080p and telling the game to render in 720p, that way the game renders the screen in almost exactly the same way (visually) as the PS3, but you don't lose any performance by having the PS4 scale the image, plus all the UI components are set for 720p, rather than 1080p, so they fit better. I urge you to try this, it should help you. You are right when you say people don't understand because 9 times out of 10, an improvement on screen is a positive thing, and you don't have to be a graphophile to see that.
Oh, BTW, Oblivion was far from the first game to implement physics, they've been in games since PS1 or before, basically about as soon as rendering progresed to 3D models rather than sprites. (actually, now I think about it, even the wire frame black and white flight sim games on 8-bit microcomputers that we played in the 80's used physics to make sure the plane handled similarto the real thing.).
The inclusion of fabric physics/texture, character physics, particle effects, world physics, etc, etc... isn't something that stems from whatever Oblivion did, and it's hardly a gimmick. If you look at the rendering in modern CG animated movies, you'll see all manner of physics at work, it's been that way since The Last Starfighter was rendered on a Cray XMP. Modern games are trying to emulate the level of detail, lighting effects, particle effects and physics done in the movies, onlydoing it at 1080p in real time.
Oh, one thing I have to say. Even though the game composites the screen and renders at 720p like the PS3, the frame rate is rock steady, so you will not see lagor frame stutter in crowded areas. Regardless of whether you see any advantage in the eye candy, the smooth frame rate at 720p is a worthwhile upgrade, if only because frame drop doesn't affect your gameplay, nor will the game be stuck rendering 32 models on screen, it will render everything.

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