I just experienced a personal discovery with DVD, Fujitsu, Arcam and S-Video...
http://www.avsforum.com/avs-vb/showt...hreadid=459919
The result was the best "filmlike" Plasma DVD picture I have seen to date.
I realize that this is not the norm, especially on the forums...but to my eyes, the outcome was very smooth and easy to watch. Very refreshing after seeing so many DVD players with upconversion, HDMI, etc. on Plasmas and always being disappointed with something.
I also will still be running all cables (component, HDMI, etc) when I complete my project, but will start out with the Arcam (probably used to fit my budget) and a decent S-Video Cable to a Plasma (not sure if I can get the Fujitsu, but sure would like to).
I have this feeling now that you just can't turn a 480i native DVD into HD quality. I also think that a newer progressive scan player will slightly improve your PQ in comparision to a 4 year old Sony, but at $700, is it going to be night and day? But hey, it's just an opinion...and opinions are like you-know-what, everyone's got one.
So in conclusion, I would suggest trying your current Sony with an S-Video Cable first to do an A/B test with Component Video (Progressive Scan). If it is the Fujitsu's AVM processor (see explanations in the link above) that works some magic, you may be OK until DVD's comes available in HD resolutions (heck we'll all need new players then).
Good luck, and please let us know what works best when your done.