...how do I set up that PC + GPU upscaling thing. Currently I just play all my videos on WMP 12 with CCCP. My CPU is a Q6600 and my GPU is a Radeon HD 2600XT
It appears to me as if, so long as you have upscaling somewhere in the mix, whether with your PC or your Blu-Ray player, then you get crisp video anyway, am I correct. Just don't leave the TV to do the upscaling and it will work right
It's really not that clear-cut, IMHO, having just been through this. I bought a custom-built PC from my local guru shop specifically for HD video and gaming on a 1080p TV. These guys have a lot of expertise behind the configuration they gave me, and it works great. I do think the video card is key, though, in the upscaling success, assuming a fast processor and at least 4GB RAM that doesn't bottleneck the card. The Blu-ray drive is nothing fancy, an LG, and works fine. I was out the door for $1,400 including a nice gaming keyboard. I could have spent $3,000, and I don't think it would have improved much.
To give you an example, I bought a copy of Arcsoft Total Media Theater Platinum for playing BD's/DVD's. They sell an add-on upscaler, which I decided to buy and compare against the card's upscaling. Worse quality as soon as I turned the plug-in on, and obvious. Pixelation immediately. I was watching the last few eps of Outlaw Star on R1 DVD at the time. If any show is a challenge, it's those older shows on R1. Even on the card, I get some pixelation, but it's minor enough that I forget about it quick.
To be honest, I haven't even tried setting different resolutions on the card to see what happens if the receiver or the TV does the upscaling. I've watched the entire 720p Thora Macross Frontier and the first two seasons of Aria on R1 DVD, and they were virtually perfect.
Another reason for needing raw power is the size/bitrate of 720p and 1080p files. My 4 year old computer just wouldn't play them at all, even with upgrading to an ATI 3850 and adding RAM. The CPU was the bottleneck. The game Crysis could be played, but only the very lowest settings, and even then I got frame rates dipping below 15. So if you have the money to spend as you say, don't be conservative on the PC. I'm still using XP because my guru hates Vista (has to deal with all the problems, of course). But I'll upgrade to Win7 64-bit, and I have room to upgrade my system as needed.
Fast hard drive, fast CPU, the ATI HD card with HDMI output, and you should be fine. I have HDMI from the PC to receiver, and just one HDMI from receiver to TV, since all audio goes into the receiver for the surround system. The new Pioneer was only $500 even at BestBuy, and it's all HDMI/HDCP. Which is one thing to be careful about... make sure every component is HDCP, or you'll be screwed for playing BD discs. If you're a gamer and have or want a PS3, it's still the consensus that it's the best DVD upscaling hardware component on the market in addition to being a great BD player, but I have no proof of that personally. So that's also an option.
If you want to take the time to research, go to
www.avsforum.com and dive into the forums. Lots of real hardcore video/audio geeks there with decades of experience. That's how I found the TV and later verified the receiver. Just don't listen to what anyone at BestBuy or on Amazon.com says...

(Newegg is not too bad for computer components, but I leave it to the pros)