Flat screen digital TVs are really poo with SD material too, via scart etc.
I was most put off with my 42" plasma, going from a 32" CRT. VM box is scart as is the PS2, both look terrible. The PS2 has been retired as it's just unbearable on the plasma. I'm trying to justify VM'd HD but the base package sucks and installation is a gyp.
Mediacenter PC is setup with DVI>HDMI and looks fine, just too damn noisy when watching HD material as it works hard and the fans fire up.
The PS3 has made all the difference though, maybe its just the HDMI, maybe it has better upscaling than the TV.
I do now get simulation sickness playing first person games though.