I agree with everyone else. Go with the PS3. The upconvert on regular DVDs is awesome. Not as sharp as a Blu-Ray picture, but much better than a 480p signal. If you're not too technical, I'll put it this way; the movie fills the whole screen.
The gaming side of things is why I bought mine, but even if you can't see yourself spending $60 on a game there are dozens of arcade/nostalgia games available for download in the $10-15 range that are fun to pick up and play.
Sony is also supposed to be working on a movie download service to make the PS3 even more of a media machine. I don't know where they're at since I haven't heard about it lately, but it's an interesting possibility.