Yes I know all the arguments against upscaling an image, the reason everyone's all doing letterbox or upscaling anamorphic pictures is because of the native resolution of DVD and tvs, but when you're dealing with a projector the image has to be upscaled on the fly (I don't know of any PAL or NTSC native resolution projectors) so what I'm proposing is doing the upscaling beforehand with some slight sharpening so the file you're playing back is in the native resolution of your projector.
In my case my projector's native resolution is 1024x768, upscaling a letterbox/anamorphic PAL/NTSC image doesn't give as crisp an image without additional on-the-fly sharpening, ie I've done some tests with creating 1024x436 XviD files from my LD's using a 2x edge-directed resampler to increase the resolution two fold by edges rather than simply scaling, the difference between Lanczos3 and this edge-directed 2x resizer can be seen here, scaling the image back down to whatever you need improves the picture I've found, this is a quick grab from one of my tests:

http://www.haku.co.uk/pics/StarWarsLD1024.jpg

because the width is already 1024 there's no rescaling when playing back and it looks clearer than the same scene encoded to mpeg2 and scaled on-the-fly.