Those vertical lines you saw are what we call Vertical Banding, which was a characteristic of all LCD projectors. There is no way to totally avoid it, except to get a DLP projector.
Use 720P output on your DVD player, because this way you are matching the native resolution of the projector,which is 1280x720. If using 1080i, it sounds like more detail, but your projector's internal scaler will downmix it back to match 720.