You need HDMI for Blu-Ray. It's a DRM issue. You can watch from your cable box if it supports 1080p (or even an upscaling DVD player), but Blu-Ray has an HDCP signal that only allows 1080p with legal blu-rays.
I don't know if the Xbox 360 has HDCP, but the PS3 does. It's simply a security measure. It keeps you from playing pirated material at 1080p.