"I was thinking that having 1080i output is not so bad given the internal processor - so maybe the Key Digital (powerbuy) is the way to go. The price is certainly nice. Thoughts?"
Bad idea. Any scaler you are going to use for a CH setup is going to deinterlace the signal to progressive, scale it then reinterlace the signal back for a 1080i output. You would then be turning around and deinterlacing the signal once again in the RS-1. The critical deinterlacing is the first time it occurs. If the processor introduces deinterlacing errors there they are going to be in the rest of the chain.
If you are going to do CH with the RS-1 and want to just use the internal scaler you will have to do it with the zoom method of filling the 2.35 screen. If you add a lens you are going to need an appropriate external scaler. I'll be using a Lumagen HDP Pro. Since most of my sources are film or HD based the Lumagen's deinterlacing is fine. I'll just use the processing in the RS-1 for NR if it works OK for that.