I don't think that was ever planned for the update. I think it was just a rumor, that spawned from people lumping in the upscaling with the video processing features.
The video processing modes (Film, Sports, etc.) are supposedly able to be bypassed now (I'm not sure if I can tell the difference though... it looked "off" to me before), but the upscaling is not a part of that. You must still pick an output resolution for the AVR, and ALL video will be upscaled or downscaled to that resolution.
To me, it's ludicrous not to have a bypass option, or at least an option to have the output resolution match whatever input resolution is present, but apparently HK thinks that's just crazy talk.