If you disable Scale to frame size for the selected clips, there is no scaling and you maintain maximum quality and it appears to be upscaled, but is not. You can then use Motion/position to get the exact image you want without quality loss. As soon as you set the scale over 100% you will lose quality. Iy you use scale below 100%, you are scaling down, not up.
Thank you, Harm, for the very helpful response. So to generalize this situation, if I disable "Scale to Frame Size" (which appears to be the default setting), then is the full original resolution available to all effects?
In the situation I describe using your suggestion, does it make a difference whether the sequence is 720p or 1080p if I am going to render at 720p? Thanks.
Yes it makes a difference. When you start with a 1080 sequence all you can do to avoid loss of quality is to not use scale at all or scale down, in which case you introduce black bars.
If you start with a 720 sequence and do not use Scale to frame size, you can scale down to 720 or anything between 1080 and 720 format and recompose your clips.