It should, but it doesn't mean there are software for that. I hope someone brave enough to write one.
1) When playing video, the up converted video has low contrast, and other quality issues. This can be fixed/enhanced with rules, to make a better video. This is not particularly associated with up converter, but up converter does have this advantage.
2) When playing video, the machine doesn't have enough time/CPU to perform intensive algorithm to do good upconversion. This is simply due to it needs to keep up with play the video smoothly.
3) Theoretically, simple images can be up converted with much better clarity. There are algorithm for that. There are many software such as Fractals, that does that. There can be better algorithm out there. The point is, if a painter can make a picture look better, make your girl friend's chest larger, and erase her pimples, the computer maybe able to do the same to a pictures or a video, given a good algorithm to detect that. This is just a joke, but it does mean given a good algorithm, there is no limit to the computer enhancing some images, or moving images (video).
For example, I was able to take an old image, select various regions, and enhance the saturation of each using photoshop. At the end, the image looks great. I don't see any reason a good computer algorithm can't copy that process.
So, there you have it, it's possible.