I have got a 1080p Blu-ray rip and I encoded it to 720p. It looks 1:1 despite on the very very little loss of quality due to conversion. And it also looks a little better, because I can see some weird lines, which, how I assume, are the traces of an actual stretch. Look:
These are actually gone after downgrading the 1080p version (not on the screenshot, it's 2x the same but zoomed).
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Is the part at the top left a 1:1 crop of the original BD? It looks like upscaled standard definition video.
The actual source would help. And not all content on a BD is 1080P.Google is your Friend