Update As most of the people coming to this page seem to be after the same answer I was initially looking for, here it is answered by a kind poster below:
Hold the power button for 5 or more seconds when starting the PS3 and it will reset the system to use the default resolution.
Now this of course does not excuse Sony for this frankly lousy implementation. How can the system not know what cable is plugged in, especially when (with the exception of HDMI) they're special Sony cables with connector interfaces designed exclusively for use with the PS3?! The elaborate cable select screen which has detailed diagrams of each possible cable you could have plugged in was probably intended to be “helpful” but the user should never need to be presented with such a screen.
Nintendo figured it out. If the cable plugged in is a composite or S-video type, then Progressive is greyed out leaving the interlace option selected. If the cable is component or D-Terminal, then the Progressive option becomes selectable. You can only choose possible and meaningful options. This is how it should be.
The other issue that keeps coming up is "why won't my PS3 output PAL?" It won't unless it's a) a debug kit for developers, or b) it was made for release in a PAL region. The latter will not be available until March at current forecast, and the former you can pretty much forget about, so if you only have a PAL TV then DON'T BOTHER GETTING A PS3 YET! WAIT FOR THE OFFICIAL RELEASE. Or better still, get an Xbox 360 and Wii combination - it'll cost the same, and you'll thank me for it later!
Although this is the first time I've mentioned the PS3, it's not like this is the first time I've discovered problems with it. It's simply that my dislike for Sony is such that I'd never stop if I started, so I normally start from the assumption that Sony and their products will be problematic, and only blog when I'm proven wrong. Which is why Sony has yet to mentioned.
Nonetheless, I shall make an exception here with an warning of dire inconvenience to all potential PS3 owners.
For clarification of how things should be done, let's take the scenario that you're in a PAL region, and have PS2 with a game disc that allows 60Hz play. For the unfamiliar, 50Hz (i.e. the screen refreshes 50 times per second) is part of the European PAL standard, but some PAL TVs can also display 60Hz (part of the Japanese and American NTSC standard) which arguably allows smoother animation, and some game discs accommodate these TVs. Invariably, when you put the disc in, it defaults to the PAL 50Hz standard, but asks if you wish to change to try out 60Hz play. If you can't see the picture, it reverts back to the 50Hz without causing any problems. Everybody's happy!
The PS3 of course takes this all into a whole new dimension. Not only can it theoretically handle both PAL (50Hz) and NTSC (60Hz) (untested), it also supports a number of High Definition TV standards that are all completely backwards incompatible, and require separate cables. Now, out of the box, the PS3 is set to NTSC, or PAL as standard depending on your region. If you want to connect it to an HDTV set, the HOME menu is happy to talk you through the process - make sure it's connected via the correct cable, choose a setting (PAL/NTSC, 765P/1125i/P etc.), test, confirm, it's actually more complicated than it could be (after all, there's no reason it shouldn't be able to detect for itself what cable you put in...) but once done it works rather well. The problem comes later.
Let's say that I was behind the times enough to be using an old regular NTSC cathode ray tube based TV like so many people born in the 20th century still are, but for some reason have been futuristic enough to have invested in a PS3. I take it round to a mate's house who has a super 65" full high def plasma display, we connect via HDMI and set the output to hi-def 1080P, and it is glorious! We can really see the sweat on Mario's face as he leaps over that rotting toadstool! That evening, my mate leaves the country forever, and I take my PS3 back home where I switch it back to the regular AV cable and plug it into my NTSC monitor. Hang on?! Why's there no picture? Cables plugged in, check! TV switched on, check! Ah... I remember, I set the output to Hi-Def via the HDMI cable, and now there is NO OTHER OUTPUT AVAILABLE. I could try to bluff my way through the HOME menu to switch it back to NTSC, but it was so damned convoluted that it's hard work doing so when you CAN see it! So not only did Sony lack the foresight to use a system of auto-detection to see what cable is connected (after all, at the PS3 side, all the cables share the same socket, and it would be astoundingly easy to do), they also failed to provide any kind of simple auto-reset, or a constant NTSC output via composite cable (the yellow one).
I'm sure other products such as digital cable boxes share similar faults, but I'm picking on Sony specifically because I don't like them, and I just had to walk all around my company offices several times carrying the 5 kilo beast in one hand and wasted 30 minutes waiting for an HD set to free up just so I could enable the damned thing to work with the industry standard NTSC box on my own desk. Shame on you Sony! Sort it out!
Update Just to add the following taken from the new Playstation website...
Copyright-protected Blu-ray video discs can only be output at 1080p using an HDMI cable connected to a device that is compatible with the HDCP (High-bandwidth Digital Content Protection) standard.
Your eyes could almost skip right over that, sitting there so innocent at the bottom of the page, looking all common sense and sweet. On the contrary, what this sentence really means is "WE DO NOT TRUST YOU!"
"... can only be output at 1080p using an HDMI cable ...(and a compatible telly)" seems innocuous enough - if you want da higher def, ya gotta get da higher def cables! But look again at the chart. Component cables too are capable of outputting 1080p, so why is it that certain kinds of discs (i.e. all retail movies in the Blu-ray format) will not output at HD definition without you purchasing an [b]expensive cable[/b] (and expensive compatible TV) that utilises a secret encryption protocol in an attempt to [b]prevent people from casually taking high quality digital copies[/b]? The mind boggles. It certainly isn't one of those issues of technology that will sort itself out over time. This is absolutely intentional and here to stay, because as far as they're concerned if you have the ability to even read a disc, then you will steal the movie you already bought! Makes you wonder what you're paying for when you buy these things, because it used to be that being able to play the movie was kind of the reason - and now they've made that impossible without first chaining you to your armchair. What's next? An optional disable on the fast forward function? A watermarking system to prevent you taking video captures of the screen? A system for making your movies completely unwatchable by remote on the off-chance a machine from the same batch gets hacked? Meantime, all the poor sods who invested in the earlier pre-HDMI HDTVs are left out in the rain, as Blu-ray movies played on their new PS3s will look no better than a regular DVD.
Just in case you think I'm exaggerating a bit here, take a look at the Boycott HD-DVD link further up the page. For those that have been following this, none of it is news I'm afraid.