Thing is, if they were going to redesign the characters to make them "fit" in an HD setting, they would've (or should've) just gone ahead and done an all-new game.
I agree with TVC that the designs and sprites were created with a certain resolution in mind...but I think that's only 50% of the problem. The other 50% is that the new art is just plain bad. There's no doubt in my mind that if they'd hired talented artists to do this, this could've turned out really well.