I can't address whether the internals are identical for an upgraded SP-1 and an SP-1.7, however I had my SP-1 upgraded approx a year ago and I have had no compatibility issues.
I have upgraded my firmware three times now with no problems (2 upgrades were to support my SPV-1).
I noticed a huge improvement in the quality of the DACS after the upgrade and I use the NEO6 cinema regularly to watch movies on digital cable. For me, the cost was well worth it. I went with the new remote (not sure if it is mandatory) and changed from silver to black. With the shipping and taxes, it was a fairly hefty upgrade, but one I have never regretted. My local Bryston dealer handled the whole process for me.
[I editted this since my first post - jethro]
I meant to add that I no longer use my Rotel-971 CD with my SP-1.7. I found 2-channel music was better with the Rotel and the SP-1 and my old speakers in bypass mode, as opposed to a digital connection to my cheap Sony DVD. With the SP-1.7, I immediately found that a digital connection to my Sony DVD (in stereo mode) was much better than my Rotel CD in bypass. I tried a comparison last week between my Sony DVD and Rotel CD with my new PMC speakers. The difference is so huge now that I can't bear to listen to the Rotel any more in bypass mode. I'm going to go out and buy a digital cable for my Rotel and not use it in bypass mode anymore.
This isn't to say that the SP-1.7 bypass is not useful. When the Bryston standalone DAC is available, it will allow people to pair it with the SP-1.7.