PS3 will upscale PS2/DVD to 1080p over component (but to tell you the truth the upscaling in PS2 games doesn't always look better, depending on your tv - Though it will make all PS2/PS1 games progressive scan which is a bonus over a standard PS2). But I'd recomend using HDMI because it looks better on most tv's now days. You only need 1 hdmi port.
I think where the confusion is without hdmi it won't play blu-ray movies in 1080p, but 1080i rather, which is funny because if your tv is 1080p to start with it will automatically de-interlace 1080i to 1080p.









