Very basically, those upscaling units are a bit of a cop out. At the end of the day, a DVD is 720x480 resolution. Your TV is 1920x1080 pixels. The upscaling IC is going to take the 720x480 signal and do its best to turn that into HD. While it will be able to make 1920x1080 pixels appear on your HDTV, the information being supplied is only 720x480, so It'll be a better picture, but only in terms on numbers of pixels, not natively sharper because of the data it is receiving. Its going to need to turn every pixel into about 2.5 pixels to 'upscale' it to HD.
Think of it as if you were ripping music. If you rip a CD to 192kbps, and then go and re-encode that at a higher bitrate (say, 320kbps), you end up with a file that says its 320kbps (or Hi-Def, to use the analogy) but is in fact simply a 192kbps file with the computer 'upscaling' to 320. Its not 320 in the sense that the file contains no new information or data.
That said, upscaling is certainly better than no upscaling, so I guess it depends on the budget. Ideally for the best picture you'll be using DVI or HDMI and the source you're getting this from (freeview, blueray, whatever) will also be full HD.