The position of the switch really depends on your set.
The Native position will attempt to display whatever format is received. However, most HD televisions do not support all formats, so the "Native" position will likely not work for all channels and programs.
Most sets support either 480p or 720p, but usually not both. Whichever one your set supports will work for most programs. On these settings, however, a 1080i HD program will not be decoded properly and you will likely get a black screen or severe digital break-up.
True HD televisions support 1080i, and this setting will display all channels, although standard definition programs will not fill the entire screen.
You can experiment with different switch positions to determine your preferred setting. Also, refer to your television Owner's Guide for more information.