The provisional answer is yes, though the extent of the difference seems to depend heavily on the type of television involved.

Take a game and play it on an HDTV (we have a 60" 1080p TV at home) without any upscaling or smoothing and note how it looks. Now, try the same game with either setting the upscaling with the PS3 or using the game's built in progressive scan option if it has it.

You could also try looking at the old video somebody made of Final Fantasy X and how it looked before the PS3 did any upscaling and then ask that same question.

Upscaling ought to make the image look very good. The smoothing option is iffy as it makes things a little blurry to cover up jaggies. I did notice that without smoothing, a game would look the same with just upscaling as it would with it's built in progressive scan (God of War 2 and Shadow of The Colossus are the two that I tried that with).

it never worked for me

but then again I havn't played PS2 games on my PS3

Ah great you've opened a topic about this. From what I've learned today and by showing pictures, let me put them down here as well... it depends on if you own a Plasma TV or a simple LCD HD Ready TV. At first I was very confused about this issue, when people told different stories about their experiences with the upscale upgrades. In my case PS2 games with a PS2, without improvement look ugly, with hazy letters / characters and unnatural colors on my LCD HD Ready TV. With games which support at least 576i or even better 480p on a PS2 with component cable I see a major difference. Therefore I've found out that a PS3 with HD Upscaling is very important, considering my type of Television.

I have a Japanese PS2 which unfortunate no longer works, but only about 3 or 4 games from the amount of 60+, support 480p. The rest only 480i. As I still have an European PS2 with about 10 games left, I was able to find just "1" game which supports 576i (for Pal only), without progressive scan. Between these two I already saw a magnificient difference:

Doesn't show standard with composite

567i with component, without progressive scan

doesnt show which standard, with composite

567i with component without progessive scan

Much clearer image with only a tiny bit of upscale.

@IllegalPaladin:

Many HDTVs are able to upscale the source material through the hardware alone; all input has to be reformatted to use the display's native resolution after all. For this reason, some people (like myself) will notice very little difference between the upscaled output and the standard PS2 output. However, for those displays that are less effective at upscaling and deinterlacing, the difference can be significant indeed.

@Onna76:

Thanks for re-posting those images here.

Yes! If your television supports it, support it! Because PS2 images look worse on HDTV. Upscaling helps alot.

I only have FFX as a PS2 game and I dunno maybe it's the lack of emotion engine but the frames don't match my tv, I mean some pixels are out of screen. Also upscaling DVD's is worth it. Dunno if it's my tv but upscaling seems to add a lot of ghosting effects. But I still prefer the upscaled images over the normal once anytime.

My Sony Bravia LCD HD Ready TV isn't able to upscale alone. It really needs support from cables, games which support progressive scans and even better... a console which upscale the games to a higher level.

You're welcome, hopefully it will help out others as well, to show that BC with upscale upgrades on the PS3 can actually be "very" important. Hah... I can't wait to see my Dragon Quest VIII and Dark Chronicle in upscale images

The ghosting is caused by your TV. Must be a LCD, as it's a problem mainly of LCD.

I don't have any ghosting on any content on my HDTV.

I can't say if PS2 images look worse on my HDTV (though I doubt it, every content look better on it so far), but even the PS2 games through composite on the PS3 look good. The only thing that I found look bad on my HDTV is FFVII through the PS3 by composite.