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JaggedSac said:
So why is Remedy using their own scaling instead of letting the 360 do it?

Because the HUD and probably some effects work at 720p. This is the process: rendering at 960x540 -> scaling to 720p -> pasting the HUD (-> postprocessing (?)).

The HUD is rendered at 720p (like in ffxiii or sc) because upscaled text is blurry and less readable.