1) Yes, it can. Just set the output resolution to 720p, and the internal resolution to whatever high number you computer could afford.
2) Can it make non-widescreen games widescreen? No. PCSX2 doesn't have the widescreen hack (I'd want it as well). So even in 720p, you'll be playing with a 4:3 ratio unless your game supports 16:9 natively.
The output resolution is the actual resolution you choose to display it at (I think that only applies in fullscreen mode though, since windowed is just windowed and you can manually resize it afterwards, but won't know what size it is).
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