The PS3 is an excellent Blu-Ray player... I bought the Sony flagship Blu-Ray player when it was initially released and compared it to the PS3, the only advantage to owning the flagship player was the analog output of high definition sound. The picture quality was the same (they both use the same video processing chip and output a digital signal to the TV, or in my case a projector, via HDMI). I decided to return the flagship player and just use the PS3 instead...
There is no comparison between upsampling and Blu-Ray disc resolutions. You are talking around 345,600 pixels vs. 2,073,600 pixels. If you have a high definition TV, that is 6 times more "real" pixels from the original analog/digital signal! That means Blu-Ray has 6 times greater resolution than normal SD-DVD (Standard Definition)... Upsampling can't add material that is missing, it can only blend in approximations using digital algorithms to come up with those 2,073,600 pixels. So, though you may have the same number of pixels in use with both signals, visually there is no comparison on a good screen. This is because the fill-in on the upsampling is only an approximation not the actual original signal at 1920 x 1080 resolution. The upsampling sometimes ends up looking foggy and smeared with blending artifacts, even when using the best algorithms on the market, because you are losing detail that can't be given back once it is gone and the only solution is to stretch out the information that is already there to fill the empty pixel space. Compare the image quality between an upsampling player and a HD-format side by side and you will find that the difference is night and day (I've made such comparisons on my HT system).
If you do decide to get an upsampling player, get the Oppo DV-981HD or DV-980HD. I use the 980 and 970 (discontinued) myself in the living room and in my bedroom (I use a Denon DVD-5910 in my HT, but this is because of its audio features...). These players aren't just a preference on my part, they are some of the best measuring upsampling players available, if not the best.