I'm pretty sure that the Denon is rated at being able to upconvert SD DVDs into 1080p. The Blu-Ray drive won't have to upconvert, since the disks are natively 1080p (or something, long story). If you have a giant DVD collection the Denon might be a good choice, but the Blu-Ray or HD-DVD player will (in theory) give you a better picture.
Upconverting can't add to what isn't there, it just makes it look really nice. That's how I understand it.