What is the secret to how the VIP Scaler works, and can it handle 4:2:2 video?

Well it doesn't sound like the Altera VIP is suitable for your needs. For someone of your experience level I expect that you've already got a scaler written that you've used in other products. Is there a reason why not to use that scaler here? If it's a matter of wrapping the avalon logic around it that's pretty straitforward.

I will make mention of something for others. The algorithm mentioned by Tricky is typically referred to as nearest-neighbor without filtering. The Altera Chroma Resampler does support a simple luma-adaptive upconversion which basically applies a simple sinc() filter.

In addition to the additional logic required for the filtering one should always bare in mind that the Altera VIP functions also require logic for the video control packet removal and insertion. So there is additional logic beyond that needed for the video processing.

Jake