What is the best way to add video processing?

Check out the DVDO DV50 Pro. They can be had for @1800$ as factory rebuilt units. They list for 3500$ or so. About the best out there without going to the Lumigen which is a couple of thousand more. I got mine through Advanced Lamps. The VP50 may also fit you needs. Under a thousand. You may find other prices by googleing DVDO . Hope this helps!

http://www.advancedlamps.com/product_info.php?language=en¤cy=USD&products_id=429

The simplest and cheapest way to do this is add a HDMI
switcher. Mono price carries some nice ones and they back up
their products with great customer service.

The processing part would be a breeze using a HTPC for your
DVD and Bluray playback. There's a plethora of free ware
that would allow you to do post processing. Media player
classic home cinema and GOM player both come to mind. You
have some that can be bought like Cyberlink power DVD for
Blu ray.

MPC-HC will allow you enough video processing to make your
head spin...and it works well!

I use it or the video card settings to rid myself of the
black bars from time to time.