Nah I think you're wrong dude. Try the latest build. It plays DVDs. And upsamples them. I read that.
Edit:
http://www.xboxmediacenter.de/info_project.htm
"HDTV support (multiple resolutions 480p/720p/1080i and progressive scan)
Supported file/container formats:
- Audio-CD (CDDA) playback for normal audio CD's (no CD-TEXT support)
- SVCD and VCD (Video CD) (SVCD/VCD menu's are not supported yet)
- DVD-video directly from Xbox DVD-ROM (no DVD-menu's support yet)*
- MPEG, MPG, M2V formats (inc. VCD's .dat and .bin and DVD's .vob)
- MPEG-TS (TY/TS/DV) DVB transport stream format"
So I think you dont get any menu options, it just plays the movie when you put it in, but if you have 'upsample to GUI resolution enabled' in XBMC and your GUI set to 1080i, well...