No it does'nt upscale it. If you have a better television to use for standard dvd's than it will upscale it, other than that the PS3 just has a regular dvd player that just reads the disc.
Mr.mcmalid, your thinking of blu-ray movies, when you put in a blu-ray dvd into the ps3 then it is up to 1080p HD resolution, that is "ONLY" with Blu-Ray "NOT" regular dvds.