My two cents before the experts weigh in:
0. Would a flat panel (FPD) bet better than a CRT?
Standard Definition will look better on a CRT, in the same way an MP3 file will sound better on a Sony music system than on an audiophile system, the CRTs are designed to show SD pictures and will show them better than the FPDs because they do blacks better than any FPD, and they track motion very well.
However with CRTs there are no HD options available in India at the moment, both Philips and Samsung have stopped their HD CRT models. So you'll be limited to SD. You would also be limited to 29" unless you consider Videocon's 34 inch model (available for about 12k), but I've never seen it and I have no idea how good or bad it is.
1. Plasma or LCD, and why?
Both are very very good these days, but I prefer plasma personally. Much deeper blacks, better motion tracking (so better for sport) better colours and perfect colour and contrast even from acute angles. It's also cheaper in the 42" category...i picked up my Samsung for 55.5k, its available for as low as 53k elsewhere in the country....Cheapest Panasonic available for 60k....On the flip side you can't get Full HD on a 42" size unless you pay a bomb, and these models are not available in India directly. But, due to the principle of acuity of vision, it will be very hard to discern the difference between 720p pictures and 1080p pictures even on a 42"....you'd need 50" or more for the difference to be really apparent. On the whole I'd still recommend you go for a 42" plasma paying some 55k.
2. Do I need HD - what is the difference between Full HD and HD ready?
Other threads have dealt with it, but essentially HD Ready is images 720 (or 768) pixels on the vertical axis, whereas Full HD gives you 1080 pixels. So the image will be composed of more number of pixels in Full HD, and will look better on a sufficiently big screen. 1080p images are now available only if you buy a Blu-Ray player and Blu-Ray discs. However, DVD players will upscale standard definition DVDs to 720p or 1080p to create a pseudo-HD image. As mentioned before, on a 42" difference between Full HD and HD ready will be marginal at best
3) What are the other specifications/features I need to be concerned about?
This would depend on your budget, but look for a good contrast ratio (this will always be much better on the plasmas), a native contrast ratio of 10,000:1 and above will be good for Plasmas (don't look at dynamic contrast ratio, that is just some trickery). Native contrast ratios of 2500:1 above for LCDs would be good. As you can LCDs just can't match up in this department.
Response time - this is again relevant only for LCDs because of inherent defects in the technology, a response time of 6 ms and above should be good.
Viewing angle - Again an LCD parameter, due to technology limitations, look for 178 degree viewing angle as essential.
Inputs - Make sure it has at least 2 and ideally 3 HDMI inputs. This is for the future when you have a Blu-Ray Player and a High Definition STB...the third HDMI of course for your PS3 or to hook up your HD camcorder
Sound - Sound on an FPD will never match that of a CRT, test-listen a few and see which is the least terrible. The Samsung Plasma i have is tolerable.
4. Which are the best brands to consider in terms of picture quality and after sales service?
If you're looking at LCDs look at Panasonic, Samsung, Sony. If you're looking at plasma look at Panasonic and Samsung. Panasonic is supposed to be the king of budget plasmas, but reignofchaos recently compared a samsung and a panasonic and concluded that while the Panny dealt with SD pictures better (since it has a better internal scaler), the Sammy actual did the HD stuff better. I'll wait for him to weigh in with his comments. Other brands like Toshiba, Hitachi, JVC etc., have good models, but after-sales may be a bit of a problem.
5. How would I upscale Tatasky video to 1080p?
All modern HDTVs come with scalers. So the image fed to it from the Tata Sky STB will be upscaled to its native resolution. Some TVs have better scalers than others. If you have an AVR that does video upscaling and has a Faroudja chip (or some other chip that is very good at upscaling), it would make sense to run the Tata Sky signal through it, let it do the upscaling and let your TV receive the images as 1080p (or 720p/768p as the case maybe). If you don't have an AVR that upscales, then let the TV do it.
At the end of the day i'll reiterate the standard rules. Go test the TVs with your own media, and if possible even your own player, set each one's picture to a comparable level (maybe just pick movie mode on each of them) and then compare and see what appeals to you.
Final Recommendation
Considering your primary use will be Tata Sky let me recommend the TV that I am using...the Samsung Samsung PS42A410C1, which is available for around 55k or the Panasonic PV8H (available for 60k)....actually maybe the Panny over mine....since reignofchaos says it has a better scaler. But the Sammy looks a lot better as a device....fits in with your decor much better
and that's always a consideration for me. the 42" Plasma category will give you the huge immersive picture, won't cost you as much as a comparable LCD and has other benefits as well.
. But jokes apart, that was well done really. 
