Argh! Is this true? I was thinking of taking the upscaling path rather than going HD already, because of the format(HD-dvd vs Bluray) wars. Hopefully, it's just the setting, because there are numerous owners of pio-600 already, and it's the first time I heard of such a disappointing issue.
BTW, doesn't PS3 have an upscaling feature too? Have you compared it vs Pio-600?
Good luck.
I think it also depends a lot on the player-display combination. I have tried the following combinations and the pq improved a lot with the upscaling from the player:
1) Pio 696 and Sony VPL-VW100 projector (there is no doubt that the de-interlacing and upscaling on the Pio 696 alone, without any external scaler, improved the picture)
2) Sony something player and Hitach 42" plasma tv (again, the de-interlacing and upscaling on the Sony player definitiely improved the picture)
In other words, you have to try it out. It certainly won't equal HD quality nor the quality of an external processor but I found that there was nonetheless quite an improvement, at least on my displays.