There are dvd players that have special chips for realtime upscaling and the results are actually pretty good. The one I have expereince with is the Denon 1910 . It has a faroudja chip that's able to do 720p and 1080i. My projector is 720p and it gives the dvds a real film like look... no jaggies and it brings out details that were not visible with my cheepo pioneer. Its about $200 US (its Denon's budget level player

)... but in my opinion well worth it since the quality difference is fairly noticeable.... even my wife noticed the difference

Check out some AV forums if your interested.

I suspect you could eek out a little more detail and perfomance with going to the trouble of trial and error with virtualdub and the likes, but the faroudja upscaler pretty good...