A lot of the answers to your questions should be found
here.
Hi there, the connection type does not dictate whether something can be upscaled. Some TVs can upscale (usually slow and bad), and the PS3 can upscale some things too (however the PlayStation 3's upscaler adds about 1.5 frames of lag, according to the source above). Upscaling, however, is only needed when going from a lower resolution source signal to a television that does not natively support that signal - like a LCD television with a higher resolution.
Going from the PS3 to a 240p / 480i CRT television does not require any upscaling at all. The PS3 can output 240p sources, and it'll work with televisions that have 480i display timing as well (if there are any that don't support overlapping the fields as 240p does).
RGB is a bit obscure outside retro gaming, and most all displays (aside from some pro or broadcast video monitors, and PC VGA CRT monitors that have the wrong scan rate) do not support it directly. However it is rather easy to go from an RGB source, which you might have a system output (either with the right cables or with a mod), to component, by using an RGB to component converter box.
The difference between RGB (which is a kind of component video actually) and "component video" (YPbPr) is this: RGB has separate signals (each on its own pin) for red, green, and blue, while YPbPr has luminosity, and then a signal with the difference between blue (the b in Pb) and luma, and then another signal with the difference between red and luma. The green component is then "filled in" from this information. YPbPr is used instead of RGB apparently because it uses fewer signals - RGB not only has the three signals, but it also has other signal pins, i.e. HV (two syncs, one horizontal and another vertical, for RGBHV, or S in RGBS, which has both syncs on one wire; there are a few other formats too like Sony's "sync on green," RGsB).
Good luck with the 20F1, many systems will be able to use RGB cables for it right off the bat, although people can have plenty of problems with them. You can always ask at Shmups before shelling out for a cable if it'll be a good deal.
Personally, I agree, S-Video often looks pretty nice. More vivid colors would be nice though.