Thank you!
Here I was trying to get better quality…
It’s slightly better when it’s 1080, but not enough to warrant two fines of nearly the same size.
I sound like a broken record, but any “improved” quality is subjective.
Whenever you see the “1080p upscaled” releases of old DVDs from the late 1990’s early 2000’s, you’ll notice they look… “different”. Something seems weird about them.
They look “sharper” and cleaner, and supposedly have more “detail”. But if you compare the two side-by-side, you’ll see how the interpolation changes the original details: “smoothed” or “smudged” colors near edges, “impurities” removed, and other things.
If upscaling really “improves” quality, try to upscale a 144p video into 1080p, and see what happens. 
You’ll get a better idea of what it’s really doing to the image.
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No issue. Thanks for the help.
Agreed.
If I had to do it again, I’d spend the extra CPU cycles to consistently de-interlace my DVD content. It does make a big difference.
You may be able to de-interlace on the final device that is streaming the content. I use a Mac mini for that purpose. Plenty of horsepower to deinterlace and upscale. I prefer doing the upscaling / downscaling / whatever on the end device vs. using the server.
I would not save the MKVs unless you plan on getting rid of the original media.
On a different note, I think the reason I was noticing such bad quality in the mkv files was that it was transcoding. And I don’t have a GPU in there so it was using my raw CPU…
I’ll just convert them to MP4 to allow direct play, as I don’t have a GPU that fits my server.
Yes, for progressive content.
Interlaced content can be a problem as many players either do a very poor job at deinterlacing or dont deinterlace at all.
Correct - unless we are talking about de-interlacing DVD content which includes encoding the video. 
You opened a can of worms by asking if it is the best quality you can possibly get. 
- interlaced content: de-interlacing in software will look better than what players do
- progressive content: see community edits/cuts/colorgrades (do you know Harmy’s de-specialized Star Wars editions?)
+1
I only de-interlace my DVD movies/tv-shows as that is where many players fall flat on their face and deliver a very poor result.
Upscaling in software does not result in much of a quality improvement - unless you go the AI route and tweak the settings to fit your content (per movie/show/episode) perfectly and dont mind really long processing times even on a RTX4090. That said there is the risk that you will still end up with an uncanny AI processed look.
When the client does not support the codec of the videofile you try to play or when the connection to the client is not fast enough to stream the video, then the server will transcode (aka. encode) the video which lowers the quality as the server will use a lower bitrate to stream the video that it has been encoded with.
For the quality of that transcoded stream it does not matter much if that encoding is done onthe CPU or the GPU - it will look worse than the source file as a lower bitrate is used and transcoding has to happen at least in realtime for the playback to work which further reduces the image quality.
Most of the stuff I have currently is DVD. I’ve never tried de-interlacing. What does that do exactly?
On the left you see what an interlaced frame looks like.
On the right you see the result of de-interlacing - a progressive frame.
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It’s a bit more than that. Interlace basically means that every other line is replaced with every scan of the CRT instead of the whole image all at once. It basically allows for the eye to get fooled into seeing a higher resolution image than is being transmitted, especially with still TV images. It’s basically a very primitive way to save 50% bandwidth using analog means.
Problem is, as good as interlacing is for reducing bandwidth, it becomes problematic for fast moving objects where things seem to be torn into strips, an effect called combing. Here is a link to a good example. The faster the object moves, the worse the tearing.
What the de-interlacing filter does is to basically figure out what the images would have looked like if interlacing had not been applied. Depending on the algorithm used, the process can yield results that look better than the interlaced content but there are limits, especially for fast moving content where the combing was severe.
Usually, it is better to de-interlace once you have made the MKV before encoding the now-progressive content with a good compression algorithm like h.264 or h.265. Files that had de-interlacing filters applied before encoding will be bigger than files that didn’t thanks to the starting media being 100% bigger than for the interlaced content.
You can usually de-interlace with your video player of choice, but depending on the content, resolution, etc. the player may not be able to keep up with the content or the complexity of the de-interlacer has to be kept low. So there are good reasons to use a de-interlacer up front in handbrake vs. after the fact.
Thank for the explanation.
I ended up simply encoding the MKV files to MP4 (oroginal res) and making sure deinterlacing was on. Not sure what the best deinterlacer is but I just used the default.