I definatly get better picture quality on auto on my TV, but thats probably because I have a 1024x786 plasma panels, so scaling 720x576 pal to 1920x1080i an then back down to 1024x768p is a lot of rescalings and it really kills the picture quality. The same is probably true on 1366x768 LCD panels. On the other hand with a fullHD 1920x1080 panel, then the result might be different.
It could also be that most people consider panasonic scalers to be pretty much as good as anything out there, and by comparison the skybox scalers really are rubbish. But a lot of LCD tv's have pretty poor scalers.. So really its best to try all the options and see what combination works best.
PS, Someone else put forward a very valid point, if you use Scart/RGB for standard def viewing, then the skyHD box is actually outputing 576i PAL/RGB, all scalers and deinterlace are disabled, and the TV's doing all the work!. Sky channels generally have a higher bitrate than their cousins on Freeview, so there really is no reason why the picture should be worse, and on the whole I find that freeview looks considerably softer than Sky's SD channels. Just remember to switch to HDMI before watching an HD channel or the box will scale the 1080i source down to 576i resolutions.