Yes, you need some sort of software to do this
To be fair it's becoming more and more common for people to do this and knowing someone who specialises in copyright laws, it's a complicated issue in which we had a long two hour long conversation which I won't bore you with. Even she agrees that it does look nice.
However now having around 100 films on my external HDD, via Windows Media Centre, it looks great and much easier than faffing about getting the discs out. However, the DVD Library isn't enabled within WMC, so a quick tweak with the registry sorts that out.
Anyway, back on topic: When I was referring to the difference between 1080i and 1080p, there isn't much to say other than as pointed out already if you have a Sky box this only outputs to 1080i. Maybe in a few years and a software update this may change. It's only noticable on a 1080p device such as a pc with a suitable graphics card, Blu-Ray dvd player or PS3.
I would only recommend a 1080p tv to those that have a device that outputs at this resolution, or you can afford to pay slightly more for the tv to future proof it slightly. The pc outputting to 1080p via the HDMI look much clearer than the standard VGA.