Hi how come my PS3 (40gb) can't not upscale my DVD picture when I watch a movie?

a regular dvd player (which neither console is) displays dvds in 480i. a progressive scan dvd player displays dvds in 480p which both the ps3 and 360 are. when a dvd is upscaled it is typically converted to 720p or 1080i, depending on the source(tv) its converting it to. so if your tv supports 720p (havent heard of 768p) then the ps3 should upscale to 720p. ive never had a problem with the upscaling process so its possible the settings on your tv need to be changed to accept the output from the ps3.