Does the Xbox 360 OR HD dvd add on upconvert?

Yes and no. It all depends on how you plan to connect your Xbox 360 to your HDTV. Engadget has a simple chat which I copied.

VGA:
* HD DVD - 1080p resolution and all others
* DVD - Upscaled as high as 1080p resolution and all others
* Games - 720p games upscaled to 1080p, also supports native-1080p games in the future

Component:
* HD DVD - 1080i resolution maximum, limited by AACS
* DVD - Upscaled to 480p maximum, limited by CSS
* Games - 720p games upscaled to 1080p, also supports native-1080p games in the future

As you can see, if you will be connecting your Xbox to your TV using VGA cables (not included in standard box) then you can upscale up to 1080p.

However, if you will be connecting your Xbox 360 to your TV via component cables (come in the box) then you can only up convert DVDs to 480p.

This isn't due to technical limitations, but rather copywright limitations. Microsoft doesn't want to get sued so they removed the ability.