The question is how good the upscaling hardware works. The theoretically best results would be if the DVD player takes the compressed data from the DVD and turns it directly into the format that your TV displays, using good algorithms for the scaling. The worst results would be if the DVD player turns the compressed data into a low resolution image, and a cheap TV uses a cheap upscaler to turn it into the right size. Worst because there are two steps involved, and one step isn't done very well.
I'd like to second this. If you watch something on the same HD screen, it's always upscaled, unless it is smaller (with black bars around it). So upscaling is always happening, and therefore it can't be a placebo

(else, the video would just remain smaller).
I guess you mean that some screens and players have an option to enhance the material. As gnasher729 said, some devices do it better than others. I played a DVD of Wall-e on our ten year old JVC DVD player. The signal was sent by SCART to our 42" Sony Bravia. The SONY TV then upscales using a simple method(I guess just multiplying the pixels). The quality is terrible and you can't read small text.
We also have the PS3 lite attached to the screen using HDMI. The PS3 automatically enhances the video and it looks quite sharp. Yes, the Blu-Ray version is slightly sharper, but from a distance, you won't notice it.
Also, I was able to read small-text, which I was unable to read when using the JVC DVD player. So the PS3 actually applies a smart algorithm to improve the quality. I don't know how it works, but I think it might work something like
the high-pass filter in photoshop that looks for edges. By overlaying the high-pass filter layer, you can make a photo appear to be sharper.
Lastly, when I compare the result of the PS3's enhanced DVD material with a compressed HD copy from my macbook (over HDMI), the enhanced DVD version looks better. The compressed HD copy suffers from
banding and other
artifacts whereas the enhanced DVD version doesn't (or at least a lot less noticeable).
Just my two cents ;D.