First, the 360 dvd player has as good an image quality as any quality player with no special image "enhancements".
Second, DVD uses low resolution bitmaps with 3 colors and optional levels of alpha for the subtitles and if you think they should have smooth edges, you're wrong. They can be semi-smooth but the pixels are twice the size of the mpeg2 image itself so forget smooth. If you see the pixels the image is sharper than on the player you thought was great.
Third it has a pathetic PAL60 bug so that it doesnt switch to PAL50 when you insert your DVD. I cannot believe they left such an obvious bug in there.
Fourth if you exit the dvd player and stay in the dashboard the dvd spins at something like 4x for infinity. They need to spin it down ffs, or do they want the drives to fail?
And of course not having upscaling is very odd.
I've experienced nothing but smooth playback, fast menu operation (infact menus are loaded into ram for instant access) and of course having the media remote makes it so much easier.