Unless I am mistaken, that player has no verified up-coversion hack so the only way to view up-covertion is via the HDMI out to a HDMI TV with HDCP; correct? I can only assume you need to set the player to output 720P or 1080I out via HDMI-OUTand into the TV at the corresponding resolution via HDMI-IN.
Check pgs 62 and 68 in the users guide for dispaly help.
I would have recommended a much better unit, the LG DVB318/418 and it does all this Sony does along with the ability to turn off MacroVision and you can up-convert via component and HDMI without HDCP needs, built-in PAL convertion & region free, and 7-2 card reader. I got mine for $115.