big_sb:
The point of up-conversion, or transcoding as it's more properly called, is to give the user a single video cable to his display for all video sources. Signals that oringinate as composite video, S-video or component video without needing to change video inputs on the TV. Most users find this a great convenience.
Tyrdium:
The transcoding process shouldn't result in a loss of quality. However, be aware that composite video from a VCR may not look good when played on a high performace display whether it is upconverted or not. The fact is that most composite video signals are of low quality to begin with and the transcoding process can't make a silk purse out of that sow's ear.
Jeff