Does Myth do DVD 1080i upconversion?

I am planning on building a Myth box reusing an old Memorex PATA DVD/CD burner and assume that Myth can upconvert any non 1080i source to 1080i including standard DVDs.

Does Myth do DVD 1080i upconversion?
Yes.

Generally, you will have myth's output resolution set to match your TV (1080p, 1080i, 720p, 480i, or whatever) - and myth will scale all content to that resolution.