Very good points. As you probably know, Matroska (MKV) is still very rare in the hardware world. In fact, I think of all the players I've seen, only the WD TV HD natively supports it.
Streaming video looks good on the DSM-750. In fact, it looks good on most players if you have a solid LAN connection. In general, I've found that the quality of the source video is carried over to the TV pretty faithfully. If you start with 640x480 video shot with a digital camera, it's going to look grainy and blocky...which is just how it looks when the DSM-750 passes it to the TV. This is the lowest resolution I evaluated players with, so I'm not sure how much upscaling you're asking about. Having now tried over half a dozen extender-type products recently, I can tell you that I found all of them satisfactory for video playback. The quality bottleneck is almost always with the source content.
I'll add that I also tended to avoid upscaling in my tests. I'd rather look at a higher quality image in the center of the screen than a blocky, interpolated one stretched across the whole display. I know that's not the perfect, quantified answer you were probably hoping for, but I tested these products as I thought they'd be most commonly used by the average user.