Yes, a good £400 DVD player will perform better than a budget one. The thing is, there aren't that many at around £400. One of our favourite models at the moment is the Marantz DV7001 (£600), our current Product of the Year, or another Award winner, Denon's DVD-1940 (£250).
But I see you've headed your post Blu-ray disc players, which raises an interesting point. For £350-£400 you can buy one of the new-gen high-definition players, such as Sony's £400 BDP-S300 (4 stars) or Sharp's £400 BD-HP20 (also 4 stars), which will of course play regular DVDs as well as Blu-ray discs.
And yes, the PS3 is a good DVD player and very good Blu-ray player, so is fine for watching movies.
Alternatively, if you decided to go the HD DVD route instead, you could buy Toshiba's excellent HD-EP35 for £350 (5 stars).
Whatever your final choice, we'd definitely recommend upgrading the cables as they do indeed make a discernable difference to picture quality. The Monster ones would be a good buy.