It does upscale to 1080p. If you have a flat panel then it outputs in progressive regardless of the source material, and the PS3 has provided good upscaling and de-interlacing since firmware update 1.80.
DVD playback works the same as blu-ray playback. You can use the sixaxis controller as a remote (playstation.com explains the button mapping) or you can buy the bluetooth remote for around $20. Or get a USB dongle for $15-up to control it with an IR learning remote.
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