I personally would never attempt to join 720p and 1080p video clips together and output at either 1080p or 720p, but if i had to, and both videos were very good quality, i would down-scale from 1080p to 720p, again just what i would do myself based on what i have been told by the people i know. In theory, i have always been told that that if you have good quality 1080p and 720p videos, you should get a better quality output from a down-scaled 1080p video to 720p than you would up-scaling the 720p video to 1080p, at least where i come from, that is generally considered to be the line of thought, and i personally would never up-scale any 720p videos to 1080p regardless of their quality or intended use, and i have never had a need to do this anyway, especially given 2 of my full HD TV's will play 720p videos and upscale them to 1080p anyway. I think you have hit the nail on the head very nicely by your explanation, but in reality, and especially in a scenario such as this one, with 2 completely different video clips, that outcome would often be a very difficult thing to achieve. The goal is to create a seamless quality level, across the whole render, that doesn't soften any of the clips too much.

I wont bother with the theoretical or technical reasons because i am not very good at explaining that sort of stuff anyway, i will just say that it is a pointless exercise for a lot of obvious reasons. If it is the latter of the 2, then that is very easy, because his source files are probably not that good, and because he is only doing it for Youtube purposes, no point in up-scaling and creating a bigger file, which then has to be uploaded into Youtube, which will take a lot longer to do than if it was a 720p file, plus Youtube will destroy it again by re-encoding it, just as they do with all my own 720/50p mp4 files, which i upload and Youtube re-encodes to around 2Mbps or less, but at least now with Firefox people are able to watch my 720/50p videos in 50p mode, where as before it was all 25p mode. May I inquire what's your rationale? Well that depends, are you asking for valid theoretical or technical reasons for why you should up-scale video over down-scaling video, or if you are asking me why i suggested down-scaling his 1080p to 720p for his own particular scenario.

Render 1080p or 720p