Yes, it can go down in resolution. We are still working in how the user can define these parameters. Probably a (text) configuration file on the SD-card. The same holds for the composite video output. It can do PAL-BGHID, PAL-M, PAL-N, NTSC, NTSC_J. It just a matter of programming the TV-out hardware. We might not support all standards from the beginning though.
Dom has created parameters for config.txt to explicitly specify the mode you want to drive (assuming it is in the EDID), otherwise the Pi will pick the native resolution (if supported) in EDID, failing that it will go through the list of supported modes and choose the "best" one via some heuristics. See discussions in the thread