Does the PS3 upscale DVDs and/or PSone and PS2 games?
Yes. With the firmware update that brought the system to version 1.8, the PlayStation 3 became capable of scaling DVDs, PSone and PS2 titles to 720p, 1080i and 1080p. An HDMI connection to a TV with HDCP copy protection is required to upscale DVDs, but games will scale through a component output as well. The system offers a handful of options for the scaling, including the ability to smooth the image, which trades a bit of blurring for makeshift anti-aliasing. Note that the upscaling does not render the image in HD directly, but rather scales the output image, so there are still jaggies present. Games that support progressive scan (480p) will override the scaling when this feature is turned on.