is there any truth to what people say: "don't keep the contrast and brightness up too high because it decreases the life of the tv."

didn't we buy theses things to watch sports/ movies and feel like we're actually there? how much damage can it really do?

The reason the brightness can have an effect on the life of the tv is because of the increased output of the backlight. Aside from random pixels, usually the first thing to go on any LCD monitor is the backlight.

I suggest anyone that buys a new LCD tv (and those that already own one) to visit this site:
http://www.cnet.com.au/tvs/lcd/0,239035307,240003563,00.htm

That should help the average person calibrate their tv to get the best contrast and optimal brightness.

With contrast up to high, you lose quality and subtleties in the bright colors. With brightness too high, darker colors suffer.