Sony America has acknowledged that there's a problem with upscaling on the PlayStation 3 in its current form, and has pledged to fix it.
Basically, some older HDTVs are happy to do 1080i (interlaced, 1920x1080 resolution) but not 720p (progressive, 1280x720 resolution). The PS3's reaction to this ought to be to "upscale" the 720p image so it's what the 1080i user sees.
However what actually happens is that the PS3 kicks out a 480p image, meaning that people's televisions are left displaying what amounts to not much more than a PS2-size image.
(To put it another way, these people reckon they should be seeing 921,600 pixels, but in actual fact they're only getting 408,960. And they want those extra 512,640 pixels, boy howdy.)
Sony says that this lack of upscaling happens because the television itself needs to have a 720p input in order to display games that don't support the higher resolution 1080p (progressive, 1920x1080) image. (It's good to see everyone's trying to make this simple and easy to comprehend, isn't it?)
"This is an issue on the side of the individual television sets," a statement from SCEA confirms, "which do not accept 720p input, so when a game outputs an HD signal only at 720p, these select TVs have to display the game at 480p instead."
All of which gibberish, however, can be happily set aside given that Sony's working on a solution that will be rolled out in a forthcoming firmware update.