I have both a Panasonic DMR-EZ485V and a Playstation 3. Both claim to upscale regular DVDs to 1080p. I have a 720p Panasonic HDTV. Which will do a better job at upscaling regular DVDs? Which unit should I use to play my DVDs?

You are probably the best person to determine which is better considering you already own both. Play some scenes from a few of your favorite "reference" DVD's and some test pasterns on each player and see which does a better job. I suspect you will not be able to tell any difference or not much of one if you do.

I have no experience with the Panasonic but I can vouch for the capabilities of the PS3. I was able to retire my Oppo player (considered by many one of the better upscaling players) after I got my PS3. I was very pleasantly surprised by the performance of the PS3 as an upscaling DVD player.

Personally, I would use the PS3 and free up the rack space by removing the Panasonic unless you still need to retain the VCR in that room/on that TV. We only have one VCR left in our house and it is connected to a small TV in the our kids' playroom.