This is one of four major issues I am having with the Intel G35 chipset in my Asus P5E-VM HDMI motherboard. I am using it in my HTPC. Here is my setup. I am using all of the latest drivers and updates from the various manufacturers:  
 
*** Hardware ***  
Intel E8400 CPU  
Asus P5E-VM HDMI motherboard w/ BIOS 0405 (2008/01/02)  
OCZ 2x2GB DDR2-6400 SLI 5-4-4 memory  
Aver PCIe Combo (R780) Media Center Upgrade (SDTV, ATSC/QAM, S-video inputs)  
SMC 802.11a/b/g 108Mbps PCI wireless  
Epson Home Cinema 720p (1280x720 @ 60Hz)  
Creative Inspire 7800 (7.1 speakers)  
 
*** Software ***  
Windows XP SP2 + all updates (4/14/2008)  
Intel Graphics Driver v6.14.10.4935 (3/20/2008)  
Intel Chipset Driver v8.3.1.1009 (9/24/2007)  
Realtek Audio Driver v1.90 (2008/3/31)  
Aver R780 Driver v2.5.0.19 (10/03/2007)  
Aver MediaCenter v1.6.1.2 (10/03/2007)  
 
 
The GMA3500 driver does not upscale games that run at lower resolutions. I am not a serious gamer, but the GMA3500 is fast enough to run the few games I want to play. Yes, that's right, I run games on an IGP are it is fast.     One of my favorite games is EA Sports NHL 2006. The GMA3500 is more than fast enough to play it at the highest setting, 1024x768, so I do not want/need the added power consumption or cost of discrete graphics.
 
The GMA3500 gaming issue I have is not performance related, it is driver feature related. I set my display resolution to 1280 x 720 @ 60Hz (true 720p) to match my projector's native resolution. However, when I launch NHL 2k6 the GMA3500 sends the signal to the projector without upscaling it; I get a tiny image on a large screen which is seriously annoying.    
 
Intel customer service said upscaling is a feature only found in high-end discrete graphics. That is bull. My old NVidia 6150 did the job perfectly. The NVidia 6150 driver had a 720p resolution setting just like the Intel GMA3500, but it also had 3 scaling options (none, use GPU scaling, or use display device scaling). Not only is the NVidia 6150 an IGP, it is older technology.
 
Even if the GMA3500 driver lacks upscaling, I should still be able to use scaling built right into my projector, right? Wrong. For whatever reason, the scaling options are greyed out (disabled) in my projector. My old NVidia 6150 let me use GPU or projector upscaling, the GMA3500 does not let me use either.
 
Any help or information you can give me would be greatly appreciated.
 
Can anyone confirm if upscaling is supported in the Intel IGP drivers? Was it intentionally omitted? Why would upscaling be disabled in my projector for GMA3500 and yet it works for NVidia 6150? Perhaps it is an HDMI or HDCP support issue? I used the same HDMI-to-HDMI 30' cable for both PCs, although I had to use a DVI-to-HDMI adapter for the 6150. Is there a way to force my display to upscale?

Ok so you put this thread in three spots because?

 
i hate when ppl do that, it's really not cool, all you are doing is spreading clutter, learn some netiqutte first, then when u have decided u can act like a big boy then maybe you should post.

now that has been said, I have a very similar set-up, same mobo, using a E3110, but the intel IGP was too weak for me, so i decided to throw down and pick up a G92 core for like $200!
 
You should have used the amd 780g chipset b/c its onboard works 3 or 4 times better than the G35 chipset, it is possible that they would not allow scaling, for w/e reason intel decided to use. I hear much better things about the 780g and u can use it with a measly sempron, talk about extreme value, and its does the job much much better then the G35...

^Agreed. Just grab yourself a 3x00 series card or a 9600 even.

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E2180 @3.2Ghz + P35DS3L +8400GS (700/475 OC)  

Your projector's upscaling feature is probably greyed out b.c. it is receiving a 720p signal.  Try setting your GPU res to whatever the game allows, and see if the project can upscale that for you.  You may need to switch it out of pixel-by-pixel mode or something like that.

And here we see the failure of Intel in three ways. First off, their customer support lied to you about res cganges available on IGPs. Second, the IGP itself is stuck on that res for many rreasons, the most obvious is, it cant do any better than it currently is doing. And third, before Intel enters into the discrete market, theyll have to figure out how to do drivers. Moneyt doesnt beat experience, and Intel will woefully find this out. To the OP, Intel is not a capable IGP, and has never been. I suggest next time, go with either a nVidia mobo, or  AMD