It's not that people prefer upscaled material, but more and more people want 720p videos now, especially 1280x720p ripped from TV shows (HDTV) or 1280x544 or 1920x800 ripped from movies (Blu-ray/HD-DVD). As a result, some people are upscaling old DVD content from 720x480 to 1280x720 (with cropping) to fool people into thinking it's a 720p video.
You're absolutely right that the quality is not any better and the file is bigger than it needs to be. But some people just like thinking that all their content is 720p, and some rippers just don't know any better.
