The thing is, you have to remember that the Xbox 360 ran those OG Xbox games through an emulator. That allowed them the freedom to upscale and smooth things out and make the games look nice, but it came with the consequence of some games didn't get emulated nearly as well and others weren't emulated at all. I have several games I've never been able to play because I didn't have an Xbox and the 360 can't read them.
Compare it to how Wii U and those early PS3s handled it: they just put the guts of the old system in there so it effectively becomes a Wii or a PS2 when you go into those modes. There's only really so much of a wrapper they can put on it to upscale things when they go into full-on hardware emulation rather than software emulation. But considering the trade off is all my stuff works, I think it's very much worth not having upscaling.