I found this from an interview with George Kamitami, the head of Vanillaware:
What do you think are the main challenges to getting to 720p-level of hi-res? Right now, Muramasa is 480 -- how big a leap is it from 480 to 720 -- what KOF accomplishes?
GK: Well, the original art we draw is all done in double-size -- in the case of Muramasa, the animation frames then get compressed down to the Wii's native resolution. As a result, producing a fully HD title would not be a great deal of extra work for us; it would just mean our original art is displayed in higher resolution. It wouldn't be a simple insert -- we retouch the compressed graphics here and there to make sure they look as good as possible -- but it's not restarting from scratch, either.
Thanks to Gamasutra
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