Okay, have downloaded the manual and in there it states the HDMI is compatible with Multichannel Linear PCM (8ch, 32-192 kHz, 16/20/24 bit) so it will definitely accept the decoded PCM from the BD35.
Upconversion is a process where you can input a load of video signals like composite, s-video or component and the amp will output all of those signals via its HDMI socket, so this could be quite useful. Upscaling is the process whereby a lower resolution source (such as standard DVD or Freeview television) is upscaled to a resolution to fit the TV's display (e.g. 720p / 1080i / 1080p depending on the TV). In my opinion, it's not really worth it in amps around your budget as, generally, the DVD player or TV's built in upscaler is just as good if not better. It's hard to know though without knowing all your equipment and testing it out to see which is the better performing.