Redoing all the artwork would be a PITA. Many of the sprites are based on 3D models, which could be rerendered easily enough but it'd take a long time to go through all of them. Some of the sprites are hand drawn, though, and for others the 3D models have been lost. It would be a major endeavor.
Personally, I think the current size is good. You're right, of course, that you can't get much details at this scale. On the other hand, if the sprites were bigger then you wouldn't be able to see as far on the map. Even now combat usually takes place beyond the screen edge.