I'm wondering what is there to gain by converting from letterbox to anamorphic. It won't magically recover any detail at all, and scaling always results in lost detail. You also need to re-encode, which reduces the quality even more, especially if you're not burning it on a dual-layer disc. To me there seems to be too many downsides.

If you're looking to avoid internal scaling by your television, consider this first. If you own a high-resolution (1366x768 for example) flat planel, it will scale the signal anyway. You could use a high-end dvd player that sends the television its native signal, but then the dvd player would do the scaling (in real-time of course, negating any benefits of high-quality off-line scaling). If you own a standard-definition tube television, it won't scale the signal at all. All it does in letterbox mode is widen the distance between the scanlines. No "crappy integrated scaling chips" involved. The only reason to convert to anamorphic would be if the scanlines become too visible on a widescreen CRT television when using letterbox mode.