Turbodog1 and Capn Pickard has covered all aspects. I do not want to re-iterate what they said but just want to add that a HTPC can match the resolution of the native signal of the projector. By feeding a signal that is native to the projector the projector does not need to scale up or down the image. The scaling up or down of the image could cause some softening or add artifacts to the image. Most DVD players output 720 x 480i(interlaced) or 480p(progressive). At this point the projector would rescale the picture to its native 800x600p or the Z3 to its 1280x720p resolution. I do not believe any DVD players output in this resolution.
The picture is only as good as the video processor. So video processors can vary from DVD players and vary from projectors. The only way is to find out which has a better video processor is to try it out. Connecting your progressive component signal of your DVD player to a projector uses the DVD's video processor. Connecting your non progressive SVideo signal of your DVD player to your svideo input uses the projectors built in video processor. Some DVD players do have better video processing, some have better processor in the projector. Look for DVD player or projector with Faroudja chipsets. Can you tell the difference? Hell yeah ... when you blow up to 100+ inches you can clearly see it. High end videophiles output the DVD players into DVDO video processors which do have faroudja chipset and upscales the picture to 720p or even 1080p (1920x1080) at $2000+
HTPC's have built in video processing (via ATI or NVidea video hardware chipsets). DVD software players are getting so good that it scales and dithers the video using mathematical algorithms to clean and present the video source as best as possible. HTPC can also match the video output resolution to the same native resolution of the projector by using Powerstrip.
Based on what the HTPC ‘er use there are seemingly 2 groups. The mad tweakers which use WinDVD with FFDShow and Dscaler. This method is for the computer savy person that does not mind installing patches, tweaks, custom settings, filters. Every new update can cause instability and the blue screen of death. But this gives the absolute best picture. The other group is the ‘I just want a best picture available’ with no special tweaks. I’m in that group and I install NVidea’s DVD software. It can produce one of the best pictures outside of the WinDVD with tweaks. Last I heard the newest version of NVDVD gives now gives the best picture period. I have yet tried NVDVD 4. I use NVDVD 3.5 and I am very happy with its picture quality and stability. See my HT link below and you will notice how saturated in colors the screen capture of Mace Windu in SW:Episode 2.
