Quicktime and VLC can play them full screen and do a pretty decent job in upscaling. You can render them to a higher resolution but 480P and 720P are pretty good for a 27" screen to begin with. Mpeg streamclip can scale most file types to anything you desire, but my bet is you have to go to higher end formats or higher bitrates to see any improvement.
Nah, just kidding. Just play the video in full-screen with whatever app your using and your iMac will do the upscaling.
Now, if you're saying that the iMac doesn't upscale 480p well enough, then that's a whole 'nother thing. I'm guessing that Handbrake can upscale a video (at the expense of file size), I wouldn't bother.