I think it's in part a matter of taste - low-res games (at least, games designed for low-res modes, as opposed to, say, running Morrowind in 320x240) don't look bad to me, just different. Provided that the low-res graphics are done by an artist sufficiently familiar with pixel art, it can look quite nice (in fact, I find that I much prefer it to most attempts to "scale up" low-res graphics to modern resolutions, whether by applying a scaling algorithm or converting by hand.)
Also yes, RGB versus composite makes all the difference.
