Sorry - clarification... I didn't say an SD TV, I said a screen set for SD... in other words, if you configure an MD for an SD resolution (because it happens to be connected to an SD TV) then when that MD is asked to play a piece of HD media, it will down-convert/scale the image to the right size for that screen mode (which in turn, happens to be the right size/resolution for the TV connected.... not coincidentally!)
This really isn't all that clever, it is just a computer after all ... if you play video on your PC, you don't worry about what the resolution is do you? The media player you are using will play it at something appropriate, or you can just zoom it to fill the screen. This is the same concept, its simply scaling/zooming the image. Because you set the MD to the resolution that the SD TV can handle, by definition, any media you play on it will be scaled to fill the screen at the right resolution. You certainly can't send an HD signal direct to an SD set for the reasons you assumed. The example of sending a signal to a set that it doesn't match was purely sending an SD signal (or actually receiving the SD signal on the set) to an HD set. Make sense?
BTW, PAL and NTSC are really not very different, and definitely not totally incompatible. The only material difference between them is the way they encode the colour information. PAL alternates the phase through 180degs of the two colour signals (yes, there are only 2 not 3), between alternate horizontal lines. This allows PAL to cancel out any atmospheric distortion of the signal giving accurate colour reproduction. NTSC cannot do this, it is static, which is why NTSC sets all have a Tint control, which you then need manually to adjust the phase angle to compensate the colour for changing atmospheric conditions. That's why broadcast NTSC looks so terrible, but NTSC delivered locally to a TV, say from a DVD player, looks fine! The subcarrier frequency of most NTSC colour signals is slightly different - so displaying NTSC on a PAL set or vice versa generally ends up giving you a black and white image, because it can't decode the colour. When this frequency happens to be the same, it corrupts the colour, but the image is still there.
Most people mistakenly believe that NTSC and PAL include a difference of refresh frequency - 50 or 60 Hz, that actually has nothing to do with PAL/NTSC, either can be broadcast in either frequency, and most modern sets will accept both. The frequency difference is derived simply from the power system frequency used in the countries that use the two standards ... convenience, which is now anachronistic. For NTSC this had the unfortunate, and coincidental side effect of making the conversion between film and TV, etc much uglier!
Thank goodness PAL/NTSC are a thing of the past, unfortunately, however, having multiple competing standards isn't. Now we have to deal with the ATSC vs DVB issues!