The 863 does no scaling when using HDMI IN to HDMI OUT, only analog in up-scaled/converted (transcoded) to HDMI OUT. Either the cable/sat box should be set to up-scale over HDMI or use the display's scaler for SD via HDMI.
For audio, the 863 can decode the latest HD audio formats so make sure the BD Player is set to send the bitsteam signal via HDMI. (Direct pg 44, DD & DTS pg 45).
