Given that you're in Australia, I wouldn't recommend the PS3 PSN version if you care about graphics. My guess is that they've ported the original NTSC version to both USA and EU PSN stores, rather than porting the PAL version for EU. It has terrible letterboxing to fill the standard screen size.
And to answer your actual question; the graphics are pre-rendered, so they can only provide the resolution that was originally developed for the game.
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Spending as long as I do here, it's easy to forget that Oddworld has actual fans.
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