No, it can't. Instant HD is a pretty good software upscaler, but it won't fool anybody that DV footage is really 1080i. That's crazy talk.
But when you mix a small amount of SD material into an HD show, you have to convert the low-resolution stuff somehow. Instant HD is one option for doing this. The results I've seen are pretty good, but given the effort involved, I think most folks will continue just using hardware upconversion. I've heard the upconversion built into HDCAM studio decks is pretty amazingly good.