It's very much a hardware limitation - to preserve the image quality for component video sources (which routinely range from 480p all the way up to 1080i) and still allow information to be overlayed on top of the incoming video signal, it would take a lot more processing power in the video switching section, resulting in a substantial cost impact. They got around this problem for the setup menu by simply shutting off the incoming signal and throwing up a black 480i screen with the menu superimposed on that, but I doubt any of us want to have our video black out every time we change volume or the audio format changes.