This makes a lot of sense. In fact, the DVDO VP50Pro has a feature wherein it can reverse any deinterlacing and upscaling. This way, it is fed the raw signal (say 480i or 1080i) and then the DVDO does its own deinterlacing/upscaling. This is because the DVDO does a better job at video processing.
great point again. 
if your DVDp has the better upscaling ability:
1. use DVDp to upscale and when connecting to AVR, choose bypass video option
if your AVR has the better upscaling ability
1. feed AVR with native resolution of source material (480p/480i) and toggle 1080p upscaling (or matching resolution of your display) of AVR
if your display/PJ has the better upscaling ability
1. feed it with the native resolution of source material, therefore bypassing any upscaling features of avr and dvdp.
Does this makes sense? Correct me if Im wrong.
Tama 'to. Also according to
Sound & Vision Magazine:
• Always start with the best connection you can. HDMI (or DVI) usually is best, followed by component-video, S-video, composite-video, and RF, in that order.
• Remember that video transcoding in an A/V receiver or preamplifier is a convenience, not a magic picture-improver. Converting a composite-video signal to component-video or HDMI will not make it better.
• You can't get a good picture on today's fixed-pixel (plasma, LCD, DLP, or LCoS) HDTVs without good deinterlacing. Cheap progressive-scan DVD players may do a worse job of it than your TV, so unless you know what's in your player and are confident of its quality, try it with both 480i and 480p output to see which looks better on your set.
• Avoid unncessary scaling. This is a particularly important consideration if you have an upconverting DVD player or a receiver or preamp with built-in video scaling capability. If you set the output on one of these devices to anything other than your display's native resolution, the display will have to re-scale the signal. And if you have, for example, a 1,366 x 768 plasma and your upconverting DVD player or receiver, as is common, supports only ATSC-standard resolutions such as 720p and 1080i, that will not be possible. If you can't match the upconversion resolution to the display resolution, don't go beyond simple deinterlacing — let the display handle the scaling.
• Never convert a 720p HDTV signal to 1080i unless you absolutely have to. Interlacing a 720p signal loses, irretrievably, its most special quality. If you are using an HD cable or satellite TV box, set its video output to "native" mode if it has one. That will send video out in the same format it was broadcast. If the box requires you to select an output resolution, choose 720p unless you have a CRT-based HDTV; then you should choose 1080i. If you have a 1080p display, you might want to try both 720p and 1080i and see which looks better to you on most of the programs you watch, or you could switch the box's output resolution based on the channel you're watching (720p for 720p networks such as ABC, ESPN, and Fox, 1080i for 1080i networks such as NBC and CBS).
