My wife and I bought a 32" Sylvania 720p LCD with a built-in DVD player for our bedroom for $399 about six months ago. The same set without the DVD player was $329, so I agree that $700 sounds high.
Where you can see the difference with 1080p is in fast-moving camera shots - 720p pictures will go "grainy" where 1080p will not. BUT that's if the broadcast is in 1080p, which most HD broadcasts currently are not. Right now, you see the most difference when watching DVDs or BluRays. That will change as more programming goes to 1080p, but from what I was able to learn this time last year when we were buying our first HD set, that's a couple of years away.
If people will be watching the set from an angle, plasma is your best bet, as LCD displays will "white-out" when viewed from an angle. We have a 50" plasma in our family room where people will be sitting most anywhere but an LCD works great in our bedroom, where all viewing is done from the bed.
With 25+ years in the custom home/automation business, I ordinarily recommend my customers stay with a name brand, such as Panasonic,Sony,Sharp,etc. to at least have a chance at repair once you are outside the manufacturer warranty. With this being for a vacation home, it may be worth the price difference to chance a Vizio or some other like loss-leader brand, keeping in mind they are for the most part disposable items, when it breaks, you own both non-working parts. If you also rent this home, this would definitely be a case for going for a lower cost solution. With LCD sets, pay attention to the viewing angles. Wall mounted sets in a bedroom commonly end up fairly high on the wall. A tilt mount may be a necessity.
Plasma would be a better choice, but with a limit of 32", you are locked into LCD unless you explore the commercial units from Panasonic $$$$.
As a side note, the 32" Sylvania that Avereage Ed said was $329 is the exact same set I bought in April of 2006 for $998 when LCD sets first came out. Who would have thought the prices would drop like that? It's a very good set with zero problems since day one.
The hype about 1080i is just that, hype. I have found 720 to be all you can use, you can only see 1080 if you use a BluRay player, then it makes a difference. If all you do is watch cable source TV and regular DVD movies, save money and go for 720. That said, I ended up buying the Pioneer 40 inch (all I could fit). The black background is really stunning. Side by side with the next best (Panasonic) I can see a difference, but if you walk out of the room and then try to remember the difference, good luck, they end up really all being pretty darn good. The new Panasonic P50G series is incredible, and the best price performance I saw. For 32 inch you need to go LCD, but I recommend trying to go up to 40 or 50 inch Plasma Panasonic.
To clarify oakridge post, I think he meant to say 1080P was mostly hype, and it is. 720p is a higher res than 1080i. The Pioneer plasmas were the best in the industry, sadly falling victim to the price wars and Pioneers unwillingness to cut costs/quality to compete.
If you are going to play the new video games, the lower rating like the 500 or 600i are not enough to get the best out of the graphics in the games. If the store salespeople are up to date and will be honest with you, they should tell you to get at least the 720 or above. It will probably cost more, but there is definitely a difference in the pic.
Oh, brother. At 32" you're gonna have to sit pretty damn close to the screen (i.e. less than 4') to tell the difference between 720p and 1080i/p. If that applies to you, then get the 1080p set, if not, you're wasting your money. See the link above for charts and distance calculators.