If you get the latest firmware - the PS3 will upconvert standard dvd's. Here is clip discussing the process:
Before yesterday's firmware update, the PlayStation 3 couldn't upscale
standard-definition DVDs to high-def resolutions--a once high-end
feature that's now built-in to nearly all DVD players with HDMI
outputs. But what's the real benefit of upscaling (or upconverting, as
it's also known)? Despite some of the marketing hype claiming that
upscaling will make your DVDs appear in true high-def quality, the
increase in picture quality will never come close to matching that of
native HD material (HDTV broadcasts, HD DVD, and Blu-ray). Moreover,
the video quality improvement is completely dependent on how good the
upscaling and deinterlacing technology in your TV already is. Every
HDTV is already capable of upscaling and deinterlacing; the only
benefit an upscaling DVD player can bring to the table is to do it
better. In some cases, the difference is easily discernible. In
others, it's much more subtle. Ultimately, an upscaling DVD player
might be able to make your DVDs look better, but the difference will
be worth it only to "critical viewers" who pay close attention to
image quality.
As the PS3 formerly did a pretty poor job of just deinterlacing DVD to
480p, there was a lot of room for improvement. We put the PS3 through
Silicon Optix's HQV test suite in 1080p mode on our Pioneer Pro-FHD1
reference display. For the most part, we were satisfied. It passed the
initial resolution test, which means it can display the full
resolution of DVDs. The next tests didn't go as well. For example, we
saw artifacts on third line on the test with three shifting lines.
We've seen better performance on this test on players with HQV
processing, such as the Toshiba HD-XA2, or even with the older Denon
DVD-3910. On the other hand, the PS3 did a decent job with a waving
flag, as there were definitely some slightly noticeable jaggies, but
we've seen worse. It did even better on the 2:3 pulldown processing
test, as it kicked into film mode almost immediately.
Test patterns performance is fine for the lab, but we also took a look
at some actual movies. The introduction to Seabiscuit can be difficult
for some players, but the PS3 handled it well, with only a few slight
artifacts--occasionally we could see some flashing behavior in the old
photos as the camera panned over them. We also watched a bit of King
Kong, which looked fantastic (as it does on almost all DVD players).
The bottom line is that the PS3's upscaling is pretty good, although
it doesn't compare to top-of-the-line players such as the Oppo
DV-981HD or the new high-def disc players with HQV processing, such as
the Samsung BD-P1200 and the Toshiba HD-XA2. On the other hand, the
PS3's DVD performance is definitely a big step up from that of the
Xbox 360 Elite. In the final analysis, when you consider that
upscaling is just one of the many functions of the PS3, we think the
performance is pretty impressive.
Another resolution issue worthy of note: it appears the 1.80 firmware
update has fixed the 720p issue on the PS3 (the system would
downconvert games and movies to 480p on HDTVs that couldn't handle
1080i or 1080p resolutions). Post-update, we were able to play a DVD
movie, a Blu-ray movie, and a game (Motorstorm), all at 720p
resolution. That'll be welcome news for the legions of TV owners whose
sets have 720p native resolution.
