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Yes,
it will upscale standard 480i content to the max supported over the interface you are using to display.
HD-DVD films will not be pressed from mid-year. As you have a Blu-ray player (ps3) which is profile 2.0 you can buy any Blu-ray disc and enjoy higher bitrates for audio and sound that HD-DVD could offer.
Personally I would have returned the drive and invested in Blu-ray, or at least go buy a cheap £50 HD-DVD player for when the XBOX360 drive fails.
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