In my limited experience with Encore CS5 so far, I've noticed that it makes you choose a resolution for your project. My first project was 1920x1080 only, but now I'm building a disc with 1920x1080 and 1280x720 sources.
How will that work? Will the 720 material be upscaled by Encore if I make the project 1920x1080?
you can set individual transcoding-settings for each film of the disc, you need to go to your project-tab and look for the column "transcoding-settings" for DVD or BD and set it like you would like it to be.
I would advice to encode/transcode assets prior authoring using adobe media encoder.