I'm in a similar situation. I bought a 360 hoping to use it with my Macbook Pro, but I planned to use it with Elgato's EyeTV Hybrid, which is basically a device you can hook up to a TV tuner, TV cable, S-video, or Composite Video source and you can run it through your Macbook Pro's USB port, and it comes with included software.

However, as Peter Cohen so accurately reported, the image quality when connecting an Xbox 360 through composite cables (Red, White, Yellow), is subpar, especially so when run in full screen. I did a quick screen grab to show you what it looks like:

However, it's worth pointing out that the over-the-air broadcasts (achieved by hooking up a regular antenna) that I get are in excellent quality (including some HD channels), though I haven't had a chance to hook it up to cable channels, but I imagine that would be even better, since it's digital.

At any rate, here's what I ended up doing: I kept the EyeTV Hybrid, because it basically allows me to watch TV on my computer, which is really useful for college. However, this didn't solve the problem of how to use my Xbox 360. So I bought a 25" 1080p Samsung monitor with both a DVI and HDMI port. It hasn't arrived yet (Tuesday, supposedly), but if all goes as planned, I'm going to connect my 360 to it via the HDMI port (I have an Elite 360 which has an HDMI output, yours may not though, so be sure to check), and connect my Macbook Pro via the DVI input (it comes with a DVI cable too). In theory, this will allow me to play games in full HD and watch HDTV through the monitor through my computer through EyeTV.

In case you're interested, the model monitor I bought was a Samsung 2693HM. It retails for $600 but you can find it cheaper online, and it's still much cheaper than a regular HDTV. Anyway, I will report back here when it arrives to let you know how it all worked out. Best of luck to you.