It won't be any worse, it will just play at the TV's definition.
Yeah it will, but since the signal isn't designed for it, certain lines may be a bit off (the TV is trying to fit, say 1080 lines into 480), whereas on the right definition you don't have that problem. It might not be noticeable often, however.
No what you said is that because it's higher resolution it would somehow intrinsically be incompatible other TVs, which makes no sense. That or you are using the word incompatible incorrectly. The players of any such content would absolutely be backwards compatible.
You are correct, of course. I have misused the term "incompatible". Not sure what other term I could've used, however.