The screen going blank indicates that the DroidBOX is switching to 1080p, but your TV isn't displaying the signal.
The reason it reverts to 720p afterwards is the because if you don't click on KEEP in the dialog box (that you can't see), the default selection of REVERT is selected. Obviously if you did click on the KEEP button, you'd be in 1080p mode, but not able to see anything on your screen.
If you want to double check this, take your X7 and plug it into a different 1080p capable TV (preferably a different make and model), and you'll see the interface that appears when you switch from 720p to 1080p. Just don't forget to switch back to 720p afterwards, otherwise you'll not see anything on your TV when you plug the X7 back into it.
What is the make and model of your TV, perhaps there are some unusual settings you can select to get the display to show what the X7 is outputting?