you should really ask yourself if the upscaling will benefit you. A lot of TVs do as good of a job on their own as most affordable receivers.
Such receivers CAN do a pretty good job with a DVD. However, you better not expect any miracles with overcompressed TV signals.
That being said, I personally believe its not even worth upscaling outboard, unless you can obtain Reon, Realta, perhaps Anchor Bay. The Faroudja in a lot of entry receivers do suffer from more macroblocking to the best of my knowledge.
Well, guess what, did you see RustyDallas' recent thread? At his local Fry's the Onkyo 875 is being had for $899. Granted, $99 over budget, but this comes with Reon. Hell, I don't even know what the cheapest DVD player with Reon costs these days.
Other FYIs regarding this tech. Just because its Reon doesnt make it as good as every other Reon carrying product. There's a lot to be said for implementation. IOW, I fully expect Denon's AVP to do much better, granted the msrp is at 7k.
The receiver is also the ideal place to upscale as it can do so after video and audio have been split.
scaling, or 1080, is the easy part. Making it "p" is the hard part. For "i" or interlaced to become progressive, the video processing has to take two fields in separate points in time, and make them as one.
Deinterlacing is the tricky part. Just some knowledge for ya.