Jim Ward says, "We returned to the Lucasfilm Archives to search exhaustively for source material that could be presented on DVD. This is something that we're very excited to be able to give to fans in response to their continuing enthusiasm for Star Wars."
I highly doubt Lucasfilm would release a crappy laserdisk tranfer of the films. This quote seems to imply that they went back to find something original. If I had to guess, that would mean the original film, but transfered to a respectable DVD resolution, with the superior DVD technology (color and all that), as well as using decent compression (few artifacts). After all, the origianl film was not displayed in high definition in the movie theater, it was on analogue film, and that means it was blurry by today's "video quality" and I hope that is all Ward meant in the USATODAY quote.
As for VHS quality, that would be laughably bad quality. This world would have to be one shitty place for Lucas to treat his original-trilogy fans so poorly. He's a completely illogical dumbass, but I can't imagine he's pure evil like that.
Either way, even if the transfer is, in actuality, poor (laserdisk quality), Star Wars fans will have to get it if we ever want to hope for a "restored" version of the original films on DVD. It sucks, but if we boycott this bone, they'll be less likely to give us anything better. Suckers who shell out cash get more attention than stingy complainers.