Postgres 9.5 implemented UPSERT. See below.

Postgres 9.4 or older

This is a tricky problem. You are running into this restriction (per documentation):

In a VALUES list appearing at the top level of an INSERT, an
expression can be replaced by DEFAULT to indicate that the destination
column’s default value should be inserted. DEFAULT cannot be used when
VALUES appears in other contexts.

Bold emphasis mine. Default values are not defined without a table to insert into. So there is no direct solution to your question, but there is a number of possible alternative routes, depending on exact requirements.

Fetch defaults values from system catalog?

You could fetch those from the system catalog pg_attrdef like @Patrick commented or from information_schema.columns. Complete instructions here:

• Get the default values of table columns in Postgres?

But then you still only have a list of rows with a text representation of the expression to cook the default value. You would have to build and execute statements dynamically to get values to work with. Tedious and messy. Instead, we can let built-in Postgres functionality do that for us:

Simple shortcut

Insert a dummy row and have it returned to use generated defaults:

INSERT INTO playlist_items DEFAULT VALUES RETURNING *;

Problems / scope of the solution

• This is only guaranteed to work for STABLE or IMMUTABLE default expressions. Most VOLATILE functions will work just as well, but there are no guarantees. The current_timestamp family of functions qualify as stable, since their values do not change within a transaction.
  In particular, this has side effects on serial columns (or any other defaults drawing from a sequence). But that should not be a problem, because you don’t normally write to serial columns directly. Those shouldn’t be listed in INSERT statements at all.
  Remaining flaw for serial columns: the sequence is still advanced by the single call to get a default row, producing a gap in the numbering. Again, that should not be a problem, because gaps are generally to be expected in serial columns.

Two more problems can be solved:

• If you have columns defined NOT NULL, you have to insert dummy values and replace with NULL in the result.

• We do not actually want to insert the dummy row. We could delete later (in the same transaction), but that may have more side effects, like triggers ON DELETE. There is a better way:

Avoid dummy row

Clone a temporary table including column defaults and insert into that:

BEGIN;
CREATE TEMP TABLE tmp_playlist_items (LIKE playlist_items INCLUDING DEFAULTS)
   ON COMMIT DROP;  -- drop at end of transaction

INSERT INTO tmp_playlist_items DEFAULT VALUES RETURNING *;
...

Same result, fewer side effects. Since default expressions are copied verbatim, the clone draws from the same sequences if any. But other side effects from the unwanted row or triggers are avoided completely.

Credit to Igor for the idea:

• Postgresql, select a “fake” row

Remove NOT NULL constraints

You would have to provide dummy values for NOT NULL columns, because (per documentation):

Not-null constraints are always copied to the new table.

Either accommodate for those in the INSERT statement or (better) eliminate the constraints:

ALTER TABLE tmp_playlist_items
   ALTER COLUMN foo DROP NOT NULL
 , ALTER COLUMN bar DROP NOT NULL;

There is a quick and dirty way with superuser privileges:

UPDATE pg_attribute
SET    attnotnull = FALSE
WHERE  attrelid = 'tmp_playlist_items'::regclass
AND    attnotnull
AND    attnum > 0;

It is just a temporary table with no data and no other purpose, and it’s dropped at the end of the transaction. So the shortcut is tempting. Still, the basic rule is: never tamper with system catalogs directly.

So, let’s look into a clean way:
Automate with dynamic SQL in a DO statement. You just need the regular privileges you are guaranteed to have since the same role created the temp table.

DO $$BEGIN
EXECUTE (
   SELECT 'ALTER TABLE tmp_playlist_items ALTER '
       || string_agg(quote_ident(attname), ' DROP NOT NULL, ALTER ')
       || ' DROP NOT NULL'
   FROM   pg_catalog.pg_attribute
   WHERE  attrelid = 'tmp_playlist_items'::regclass
   AND    attnotnull
   AND    attnum > 0
   );
END$$

Much cleaner and still very fast. Execute care with dynamic commands and be wary of SQL injection. This statement is safe. I have posted several related answers with more explanation.

General solution (9.4 and older)

BEGIN;

CREATE TEMP TABLE tmp_playlist_items
   (LIKE playlist_items INCLUDING DEFAULTS) ON COMMIT DROP;

DO $$BEGIN
EXECUTE (
   SELECT 'ALTER TABLE tmp_playlist_items ALTER '
       || string_agg(quote_ident(attname), ' DROP NOT NULL, ALTER ')
       || ' DROP NOT NULL'
   FROM   pg_catalog.pg_attribute
   WHERE  attrelid = 'tmp_playlist_items'::regclass
   AND    attnotnull
   AND    attnum > 0
   );
END$$;

LOCK TABLE playlist_items IN EXCLUSIVE MODE;  -- forbid concurrent writes

WITH default_row AS (
   INSERT INTO tmp_playlist_items DEFAULT VALUES RETURNING *
   )
, new_values (id, playlist, item, group_name, duration, sort, legacy) AS (
   VALUES
      (651, 21, 30012, 'a', 30, 1, FALSE)
    , (NULL, 21, 1, 'b', 34, 2, NULL)
    , (668, 21, 30012, 'c', 30, 3, FALSE)
    , (7428, 21, 23068, 'd', 0, 4, FALSE)
   )
, upsert AS (  -- *not* replacing existing values in UPDATE (?)
   UPDATE playlist_items m
   SET   (  playlist,   item,   group_name,   duration,   sort,   legacy)
       = (n.playlist, n.item, n.group_name, n.duration, n.sort, n.legacy)
   --                                   ..., COALESCE(n.legacy, m.legacy)  -- see below
   FROM   new_values n
   WHERE  n.id = m.id
   RETURNING m.id
   )
INSERT INTO playlist_items
        (playlist,   item,   group_name,   duration,   sort, legacy)
SELECT n.playlist, n.item, n.group_name, n.duration, n.sort
                                   , COALESCE(n.legacy, d.legacy)
FROM   new_values n, default_row d   -- single row can be cross-joined
WHERE  NOT EXISTS (SELECT 1 FROM upsert u WHERE u.id = n.id)
RETURNING id;

COMMIT;

You only need the LOCK if you have concurrent transactions trying to write to the same table.

As requested, this only replaces NULL values in the column legacy in the input rows for the INSERT case. Can easily be extended to work for other columns or in the UPDATE case as well. For instance, you could UPDATE conditionally as well: only if the input value is NOT NULL. I added a commented line to the UPDATE above.

Aside: You do not need to cast values in any row but the first in a VALUES expression, since types are derived from the first row.

Postgres 9.5

implements UPSERT with INSERT .. ON CONFLICT .. DO NOTHING | UPDATE. This largely simplifies the operation:

INSERT INTO playlist_items AS m (id, playlist, item, group_name, duration, sort, legacy)
VALUES (651, 21, 30012, 'a', 30, 1, FALSE)
,      (DEFAULT, 21, 1, 'b', 34, 2, DEFAULT)  -- !
,      (668, 21, 30012, 'c', 30, 3, FALSE)
,      (7428, 21, 23068, 'd', 0, 4, FALSE)
ON CONFLICT (id) DO UPDATE
SET (playlist, item, group_name, duration, sort, legacy)
 = (EXCLUDED.playlist, EXCLUDED.item, EXCLUDED.group_name
  , EXCLUDED.duration, EXCLUDED.sort, EXCLUDED.legacy)
-- (...,  COALESCE(l.legacy, EXCLUDED.legacy))  -- see below
RETURNING m.id;

We can attach the VALUES clause to INSERT directly, which allows the DEFAULT keyword. In the case of unique violations on (id), Postgres updates instead. We can use excluded rows in the UPDATE. The manual:

The SET and WHERE clauses in ON CONFLICT DO UPDATE have access to the
existing row using the table’s name (or an alias), and to rows
proposed for insertion using the special excluded table.

And:

Note that the effects of all per-row BEFORE INSERT triggers are
reflected in excluded values, since those effects may have contributed
to the row being excluded from insertion.

Remaining corner case

You have various options for the UPDATE: You can …

• … not update at all: add a WHERE clause to the UPDATE to only write to selected rows.
• … only update selected columns.
• … only update if the column is currently NULL: COALESCE(l.legacy, EXCLUDED.legacy)
• … only update if the new value is NOT NULL: COALESCE(EXCLUDED.legacy, l.legacy)

But there is no way to discern DEFAULT values and values actually provided in the INSERT. Only resulting EXCLUDED rows are visible. If you need the distinction, fall back to the previous solution, where you have both at our disposal.