It still works fine. I have an EVO with Froyo and can still change it one by one. But, just like you I have around 300-400 contacts and that will take to long. I am looking for a universal setting to change the display name option.
By the way, this is how you do it on the EVO for Froyo.
Tap People, tap a contact. Scroll down to the bottom and tap edit contact. Select which contact, if there is more than one for that person, you would to edit. Tap the box where the name is on top. You will see Display Name. Change it there from first name, last name to last name, first name. I doubt you want to do 800 contacts that way, but it does work. I don't know of an editor that can change all of the contacts at once to Last name, first name. That Better Contacts does that inside its program, but doesn't edit HTC People's App, at least that is the way it sounds.