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All regular DVDs are recorded at 480 – it’s the DVD player that plays them at either I or p (it’s in the setup menu). What the upconverting does is change the resolution through algorithms the TV recognizes as 720 or 1080 depending on what setting the DVD is at (once again, from the DVD player’s setup menu) and the native resolution of the TV.

Just to add to this. DVDs are encoded at 720x480 30 fps interlaced. (technically 720x240 @60 fields per second). There are also some lower resolutions allowed for DVD-Video, such as 352x240, but no major movie would be encoded like this.

When encoded from 24 fps film, the stream repeats some fields (via a process know as 3:2 pulldown). In this case the encoder actually doesn't encode new copies of the repeated fields, it just marks them with a repeat flag. If you have selected progressive output it will skip the repeated fields and output 24 fps. If the content wasn't encoded like this you will still get 30 fps at 480i. Most movies are encoded with the repeat field flags. Stuff you record from TV will be 30 fps 480i.

Converting from 480p to 720p or 1080p is a "simple" matter of applying upscalers, not much different than how the GPU in your PC scales any window to any size (ignoring how apps react to different sized windows). There is a difference though. Consumer boxes (mostly) cut costs everywhere and they may have only enough memory for a single horizontal line buffer. (seems silly compared to the megabytes in a PC GPU board). So they may have a good quality horizontal upscaler but the vertical scaling may be poor, since the filters would have fewer taps. This is where high cost boxes will show an advantage.

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