Just checked the box and it is set on 576p resolution. Not very high is it?
No, that is standard defintion! I don't know what settings there are but auto will usually detect compatible settings. This will output standard definition (SD) at 576p and HD at, in your case, 1080i. The TV will then usually upscale 576p SD pictures to a kind of pseudo-HD at 1080i.
If you set it to 1080i, SD will be upscaled to 1080i by the box, not the TV. Depending on how good either the box or TV are at upscaling, one of these options will have a slightly better SD picture quality than the other. HD channels will look exactly the same. Just try both options and see how they look.
This does assume that you have HD Freeview in your area (or a bluray player, or a PS3).
[edit] Freeview HD channels are 50, 51, 52 and 54, but note the first three won't always have HD content
John