I don't think they're claiming it can deal with the other resolution modes? This seems to be a 960x1080 -> 1080i/p transformation. I bet the SDK will actually use 1280x720p if the OS is configured for 720p output or the developer is asked to first detect the output and choose either 720p or 960x1080. Since real 720p is less of a workload than 960x1080, it's likely that the transformation will not produce any performance hiccups. For 480p, you can either render at that res, or simply downsample the backbuffer, since the memory requirements to hold a 480p buffer are not significant.
I think if Sony really had a true hardware scaler, they would have enabled it at the OS level and it would not need SDK support, nor would it be only a "half scaler"
My guess is, they came up with a trick for "scan doubling" the horizontal that would not require too much extra performance or developer headache (e.g. 960x1080 res) using some aspects of the RAMDAC or TMDS system. I'll admit, I'm not really sure how they're doing it, but I remember plenty of tricks you could do by playing with VGA clocks, so I would not be surprised if they are using some flexibility of the scan-out devices to implement this.
The reason this smells like a hack and not a real hardware scaler is:
1) it requires explicit SDK support rather than being something you can just toggle on and off (a HW scaler would sit between the framebuffer and HDMI out and would not need explicit SDK control)
2) the idea of a HW scaler that can only deal with one dimensional axis, and requires a nice, even power of 2 resolution to scale is very strange
3) no one who has done teardowns of the PS3 has been able to identify any such HW
4) if Sony really had a HW scaler, they would be releasing PR
press releases, it would be in the marketing materials/spec sheets, and they would not allow MS to get away with all of the attacks on PS3 resolution issues
5) It's really stupid to launch a console worldwide in a heated race with MS, already 1 year behind, and not fully reveal all of your HW capabilities to buyers. If you were already 1 year ahead, you might choose to keep secrets since you're in the lead and don't need them. But if you're playing catch up?
Like the hopes and dreams of people who thought there would be an HDMI cable for the Xbox360, since there might be "secret" HDMI support or A/V pins on the 360 (again, why not launch with an HDMI cable accessory then if you went through the trouble of including TMDS hardware that is costing you on every box shipped!!) This "PS3 has a hardware scaler" issue will turn out to be a big myth IMHO, unless you want to play semantic games with the definition of "hw scaler"