Tv's do upscale but the 360 scaled is better then that of tv's. The ps3 can encode it to games but many do not because it hurts the framerate when people force it to 1080p. That is why many ps3 games downscale. When you press the info button on your tv remote it shows 720p for ps3 games which is what your tv is being fed. The 360 feeds the tv 1080p because of the fantastic chip. Xbox game devs do not have to encode games because the console does that better then a tv does.
The ps3 version lags behind due simply because of it being a port. That is it.
No tv is going to make the ps3 version look better then the 360 version even if you use a cheap hdtv.