Well, as it was installed by a Sky engineer I presume it's all OK

- good one.
The option to highlight native HD can be found under OPTIONS->Customise->HIghlight Programs Originated in HD. The EPG will put native HD in orange.
Anything on a HD channel not in orange will be upscaled by the broadcaster. This is the process of converting SD signals to have enough line to fill a HD TV. Obviously would be done by the Sky Box/TV anyway (like it does for SD channels) but the broadcaster should be able to do this much better using their £££ broadcast kit.
Anything on an SD channel will need to up converted to fill the HT TV resolution, this is where the SETUP->HD REsolution the McP talks about comes in to play, and the "best" setting depends on the TV you have and is subjective:
1080i means that HD channels will be displayed as Sky broadcast, and SD channels will be upconverted by the box.
720p means that HS channels will be downconveted to 720 lines and converted from interlaced to progressive by the box, and SD programs will be upconverted to 720p by the box.
Automatic means HD signals and SD signals are passed to the TV as is. The TV will be responsible for upconverting the SD signals to fill the HD TV, and may downconvert the HD signal from 1080->720 if the TV is not capable of 1080 display.
It is a bit more complicated as most HD Ready sets are 768 lines, meaning the TV stil has to do some conversion from 720->768 if you set the sky box to 720p.
Also you's think the extra lines between 1080 and 720 would make a massive difference, but they don't to my eyes at about 10ft viewing distance!
In short, suck it and see