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I don't understand how a game could "up convert" to a higher resolution if the original resolution is 480. I mean you don't get something from nothing...right? A company that writes games would not write the game in a higher resolution that nobody will see...would they?
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All HDTV's upconvert every signal that is not input at their native resolution. Depending on the quality of the scaler in the TV, this upconverted picture can look fabulous or terrible. Upconverting DVD players attempt to do a better job then the TV scalers. The Toshiba HD-DVD player is well known for it's impecable upconversion of standard DVD's. I see no reason why, with all of its processing power, the PS3 cannot upconvert DVD's. If they don't provide that function, it's their loss.