The Sky HD box can upscale all channels/deliver native HD channels at 1080i.
The quality on upscaled SD channels, as often commented, depends on the source involved.
So, for example, Channel 4/E4, where a lot of the US drama is natively HD, looks great upscaled from SD via the Sky HD box (though not for long - soon it'll be native HD all the way,as we covered here
Lower-quality channels - such as ITV 2/3 - however, can look absolutely woeful, as the source content appears to be 1980 VHS tapes in some cases.
If you're already a Sky+ customer with a Full HD on the way, i'd say Sky HD makes a lot of sense - especially as Sky is doing deals on the box for existing customers. Worth the extra money for a lot better picture....