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ssj12 said:
yes it does, and mostly all standalone BR players do too.

All standalone HDM players, Blu-Ray and HD DVD, upscale DVDs.

@kn: The ps3 is an exceptional DVD upscaler, and various reviews have said it upscales about as good as the Toshiba XA2, and the A2s upscale better than the A3s, as they use the more expensive Reon chipset, which was replaced in the A3s to reduce costs. The Reon chipset is second only to the Realta chipset, which is only used in a few very expensive dedicated DVD upscaling players.

Although, some say that the ps3 matches even the Realta chipset in it's upscaling capabilities.

Check out this comparison done by the Firing Squad:

To test the challenge that upsampled DVD is “nearly as good” as Blu-ray, we decided to use Pirates of the Caribbean: Dead Man’s Chest. When it comes to picture quality, not only is this one of the best Blu-ray discs on the market, it is also one of the best DVDs on the market.

This comparison shows how far technology has gotten. Although the AMD Radeon HD 2600 offers the blurriest picture in this group, it’s important to keep in mind that the Radeon HD 2600 is already superior than the typical video processor found in most HDTVs on the market. Unfortunately, the Radeon has a fixed detail enhancement algorithm. With 51% sharpening (the half-way point), NVIDIA PureVideo provides a very good image. Even then, the PlayStation 3 seems to outperform NVIDIA’s upsampling quality by just a hair. This is a true testament to the power of the Cell architecture and how easy Sony has made it for the end user.

While we always value user-adjustable sharpening (as NVIDIA and HQV Processors allow), Sony’s default settings provide very good picture quality with no glaring artifacts.

For this particular scene, the PS3’s 1080p upsampling is actually a hair sharper than the HQV. In fact, you just need to look at the Kiera Knightley’s hair and eyelashes. The PS3’s output does produce a bit of aliasing (most easily seen in the strand of hair crossing in front of the eye) – the HQV provides a smoother image. The Realta’s detail enhancement that provides added local contrast giving a “punchier” overall image.