They don't need to do all that. It's not nearly as complicated as you think. All they will do is take it run it through some software designed to clean up and improve the picture and sound quality. They did this before when it was converted over from VHS to DVD. Now they have even better software then they did before that can convert DVD to blu-ray quality.
No they don't. There's conversion software to make your DVDs look better on an HDTV than they do on a SDTV, but you don't need to buy Blu-ray Discs for that. It comes in higher end DVD players these days. However, just because it looks better than SDTV quality doesn't mean
it's at full HD capacity like a Blu-ray Disc. A Blu-ray Disc encodes the picture (forgive me, cuz I suck at math) at more than twice the resolution of DVD (1920x1080 vs. 720×480) and at twice the frame rate (if you've got an HDTV that can handle the higher frame rate, at least). It is IMPOSSIBLE to make the DVD image get to that point. It is even less possible to get an old video image to that point (honestly, DVD has a high enough resolution that you start to see the flaws in video, let alone something like a Blu-ray Disc).
Edited to add:
You also overestimate how easy it is to restore a film. It's often a painstaking process, and while digital tools have made it easier, not all restoration studios have access to the kinds of tools you're talking about. Even Lowry Digital (the folks who worked on the Star Wars
dvds), with their breakthrough algorithms, have to go through and check each frame manually to make sure that the software is doing its job properly. When they don't, you get things like Darth Vader's neon pink lightsaber on the Return of the Jedi