We watch DVD on PS3 all the time. I haven't noticed anything wrong on the pictures. Mine is older 80GB version with SACD capability.
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My answer is the the same as that of Jylee. I played the old Francesco Rossi DVD of Carmen on my PS3-80 recently, thinking it might look like crap projected on a 100" screen via HDMI, but was very pleasantly surprised. The projector is a Sony VPL-50 AKA Pearl. Another pleasant surprise was that for the first time the size of the video image matched the audio image.