NO! fight the urge to always up the resolution!
1) I think that your 320X240 res picture does not look like crap. In fact, I think it looks better than the 640X480 because it better mimics the style of classic adventure games.
2) Your sprite is better suited to the 320X200 resolution. He looks much more natural in the lower resolution picture. Furthermore, the low res version has a better feel to it. The high res picture doesn't have as much 'character' and seems much more santitized.
3) Animating low res sprites is a daunting task. When you double the resolution, that doubles the amount of pixels that you have to worry about.. Consequently, you double your workload. Every frame in an animation will have twice the detail -which is ok- but extremely time consuming.
4) The feel of your scenes remind me of the Legend of Kyrandia Games (1&2)... Go to Mobygames.com and look over the Legend of Kyrandia 1 and 2 screenshots. Look at how they did the trees, ground, and sprites.
5) All in all, I dig your stuff.
