Correct, it will only upscale movies over HDMI and VGA. HD DVD movies will be 1080i over component. I just went from a launch 360 to an Elite and I have a 1080p TV as well as an HD DVD drive, so I have tried the different set-ups.
Wrong? Did you not even read the entire first post or the title of the thread? 720p or 1080i over COMPONENT is what he asked and that's what the add-on does for HD-DVD playback.