Dual Layer DVDs usually look better than an old 4.7gb DVD movie. Most movies at this point in time are being released in Dual Layer or similar formats (DVD 9 for example). These discs have a larger capacity to store data, and will look a little better than movies from 5 years ago. A lot of these discs also have copy protection, something older DVDs don't have much of (but thisis beside the point).

While the picture quality certainly could be worse than it is, nobody can deny that the picture quality could also be better than it is. On a non-anamorphic film, you want to zoom in and remove the black lines, but you are astounded to find out that the quality seems to degrade. What you are not considering, though, is that this process is very similar to the Digital Zoom feature on a camera. If you zoom with the lens, your picture will still be crisp. But if you use the digital zoom feature, you might realize that the quality is not even close to what it was before zooming.
A picture image, wether a still picture on a camera or a moving picture in a movie, has a certain number of pixels associated with it. This number is constant and is defined as the resolution of the image. When you are watching a movie on a DVD player, the machine will attempt to play the movie at its native resolution. If you try to zoom in, you are only making those pixels bigger, you are not really zooming in. Bigger pixels looks like lower quality. Any movie that you do this to will give the same results every time. Zoom in and the quality does not look like it did before the zoom. Its just common sense. HD-DVDs and BlueRay DVDs might have less pixelization when you zoom in, I don't know. But for regular DVD movies, zooming in is gonna give a picture that is more blurry than the native image.

I would strongly recommend that you wait. Next year is the 30th Anniversary of Star Wars, there is no way that George Lucas does not plan to capitalize on this party. I fully expect every edition of all 6 movies to be re-released again on both HD-DVD and BlueRay DVD, maybe even as a deal with a new DVD player and/or TV package depending on the Retailers. It will be advertised yet again as "The Definitive Star Wars Collection for the technologically demanding conniseurs of Fandom all over the world." It will again be the re-re-re-release that will make all other sets and editions completely obsolete - garage sale junk. Commercials will say things like "if you haven't seen Star Wars on HD, you haven't seen Star Wars at all" and "the most complete Star Wars experience since auditorium theater seating" and "immerse yourself in the Star Wars universe like never before - you'll feel like you're flying the X-Wings down the trench - and your neighbors will feel like it too!" and "such a level of HD-THX clarity that you could literally sell tickets to your living room on MovieFone and be sold-out in a matter of minutes."
Just wait till next year.