No one has said the Console is enhancing the image, just that a console (with dedicated graphics hardware) is scaling the video output and that it performs this task better than a TV. Better meaning less loss of fidelity. As there is a loss regardless of what device is scaling.
In comparison, I can watch a DVD with my 360, it's scaled to 1080p, it looks...okay. I can watch the same DVD with my laptop upscaling it to a 1080p image (assuming fullscreen) and it looks better than the 360. They're hooked up to the same monitor as well. Source material affects the overall outcome though, a movie without any retouching will look like a VHS tape whereas something newer like Transformers scales quite nicely in comparison. Both the 360 and laptop however, do a better job than a regular DVD player hooked up with component to a 1080p TV.