I would say the upscaling is a critical issue for me. My older AVR was nothing more than a relay switch for video signal meaning the output type had to match the input. So if you had a component video in, you get a component video out. In practice, you would need to switch the receiver for the source and the tv to match the correct input and have multiple cables from the AVR to the TV. With the upscaling/processing, you can upconvert everything to HDMI and run one wire to the tv/projector and not have to mess with the tv/projector inputs. Granted some tvs do a great job with the upconversion, but having to switch two sources is a lot of mental work for spouses, visitors, etc.
In my particular case, I swapped out the TV for a projector and now have 15' of cable run to consider. I can't feasibly run HDMI, component and composite (all connection I have and use regularly: HDMI=BD, component=DVD/wii, composite=old tivo). Video processing is required to transfer the signals to the single HDMI cable. Whether or not any upscaling happens at the AVR stage is something I want to empirical explore once I get the new receiver. Keeping the audio and video processing in the same box (AVR) would seem like it would be easier to keep the lipsync issue from cropping up. Time will tell.