RE: Can WMM save more than 720x480?
The newer versions should be able to export in higher quality.
I don't suggest Windows Live Movie Maker because it doesn't have much of the essential editing tools that Windows Movie Maker have.
If you have Windows XP or Vista; there should be an option to export up to 1080p or even higher.
If you want to save your video in 16:9; you need to adjust the frame from 4:3 to 16:9 or else it will have black bars to the side of your video.