Yep. Upconversion is recreating data that isn't there. They can get better at it, but can never match the original. The question is, can they get "good enough."
And moreso, if they do, that same technology can be applied to HD and produce even more incredibly detailed images, perhaps creating a market for 2,000 or even 4,000 line displays. So to some extent, perfecting that technology only buys some time, at best, and sows it's own demise.
Eventually, BD players will drop to around $100, at which point DVD only players will not be viable. By then, it may be common to only pay $3-$5 more for high def discs over plain DVDs. As the HD market grows, eventually studios will see it in their best interest to release more and more titles only in Blu-ray, where they presumably will make more profit. And more HD programs and more HDTVs in homes will make HD more common- and expected. Synergy.