Your XBR will upconvert all signals to the 1080p native resolution. The DVD player will output a 480p signal via component video connections and your XBR set will upconvert to it's 1080p native resolution.
There are some advantages to an upconverting DVD player. Mainly an all digital signal. The new Oppo 981 (not released yet) is supposed to output a 1080p signal via HDMI.
If you are happy with the picture, that's all that matters. There may be some gains with another device doing the upconversion versus the processor in the XBR.