You raised a good point. I questioned that also. Yet, I had a slightly different experience. I saw a Blu-ray player "upscaling" a regular DVD on a decent LCD TV. It obviously wasn't Blu-ray picture quality, but I was impressed with the improvement in picture over standard playback. In this case, it was the player doing the "upscaling" and not any av receiver. The HDMI connection was going directly to the TV.
I think you misunderstood my point slightly. I am not saying upscaling is hype..etc. I am saying that any of the new Sony BDP, (Pannys as well), PS3 and Oppo all can do a very decent job upscaling and there really is no noticeable improvement using the top notch upscaler of the Oppo models in a blind test. I am also saying that the claim of certain BDP such as the Oppo models being so superior and noticeably better playing DVD are hypes and exaggerations.
In my experience, if the transfer is good, it will look great with any of those BDPs I mentioned. If the transfer is bad (I can give you a couple of examples), it will look bad no matter what, and the Oppo will not make them look better than the PS3 can. So I am not surprise your BDP upscale better than your LCD TV, but I will bet using the same BDP, with its internal upscaler off, it will still look just as great if you have a newer upper end model Plasma of LED backlight models such as the Samsung 800 series.
Basically it is my opinion that one does not need to make their choice of a BDP base heavily on their perceived superior upscaling quality. I bought my Oppo 95 for its perceived AQ only/mainly. That was a good thing because I saw no benefit using it to play DVD.