It outputs progressive scan with games but not DVD. I think there is a hack somewhere for this, but not sure. I have a US XBox connected via component with progressive out to my plasma and it looks great.
The difference is not huge as my Panasonic plasma has a highly regarded deinterlacer of its own, so when you feed an interlaced signal the plasma does a good job of the conversion anyway. But, if you're asking is there a big difference between interlaced and prog scan then my answer would be yes, there is a major difference (especially on larger screens where interlaced line structure would be more evident).