Just speculation, but I imagine the 16 bit fight scenes are only shown during modes with battles against that particular character.
You have to keep in mind, the bulk of Stern's demographics, disposable income late 30 to late 40 somethings, have fond memories of fighting games. It is an attempt, a successful one in my opinion, to draw on that nostalgia. It is pinball. Nostalgia is driving this whole industry.
There will be plenty of high res. I am pretty doubtful that Gary Stern will allow an asset such as a high res screen to be solely limited to Sega genesis style game clips. I love em though.
P.S. That art. Wow.