Deinterlacing/upscaling of SD material can be at several places. One in the AVR or the other the display.

All displays have their own deinterlacing/upscaling algorithms/chips. In some cases the upscaling/deinterlacing done by the AVR is better than the built in ones from the display.

One example, Panny Plasmas do not do deinterlacing too well. They upscale ok but do not do deinterlacing as well. As such, feeding a 576i (Astro) to a Panny plasma (X, S) would not yield a better picture compared to a 576p signal from a AVR.

However, the compression on Astro is unbelievable. No amount of algorithms/chips can repair that.

Some displays have very good scalar/deinterlacing chips in them as such, you would not see a big difference between upscaling/deinterlacing thru a AVR.

All signals are upscaled by your display, unless u select not too. As long as the display fills the whole screen, some form of upscaling is done. All HDTVs are progressive by nature, as such, all interlaced signals are deinterlaced as well.