I'd agree with that, I've had my HD box outputting 1080i ever since I got the plasma and I've been really disappointed with the SD picture quality. Then someone on here suggested setting the box to auto, I did so, allowing the TV to upscale and the difference in picture quality is night and day, the soft, almost blurry look it had before has gone, edges are much sharper and the whole picture is crisper.
I don't care how bad the Sky box's deinterlacer is, its upscaler is far worse, there's no comparison for me, I'm leaving the box on auto!