A Nano 4g with Apple Component cable should be able to support up to 480p video, though I'm unsure why you'd encode at such a high resolution on a portable device (I almost always encode to the device's native resolution). The benefit of using your receiver's connection is remote control... the downside it the horrible terminal-text interface. There are some 3rd party docks that include remotes and pass the iPod GUI on to the TV, but can't can't comment on which.

EDIT: The Classic and Nano 3g/4g will output 480p, not 720p... sorry about that.