Hi,
i was able to spot it yesterday, that some of the videos did support 1080p.
Go to youtube app and chedk for the song "google my bulbul", you would get 1080p option.
i think what google has probably done is that the videos that are available on 1080p, the options are enabled and videos which are maximum at 720p, they are not ready to upscale to 1080p.
Hope this answers for the other section too..