You don't have to increase the res sprites. Better off using filters for the sprites. I think the PS2 and the arcade version contains the same sprites but they used their own renderer to look better.
http://en.wikipedia.org/wiki/2xSaI"Pixel art scaling algorithms are image scaling algorithms specifically designed to enlarge low-resolution pixel and line art that contains thin lines, solid areas of colour rather than gradient fills or shading, and has not been anti-aliased.
The standard scaling algorithms are bilinear and bicubic interpolation. Since they work by interpolating pixel colour values, and usually set each pixel to a value interpolated between four input pixel values, they introduce some blur into the output. Although this is acceptable for continuous-tone images, it destroys sharp edges and is often seen as ruining the appearance of line art. Nearest neighbour interpolation preserves these sharp edges, but it makes diagonal lines and curves look blocky. Thus, the ideal algorithm for enlarging line art would be one that would interpolate areas of continuous tone, preserve the sharpness of orthogonal lines and smooth (ideally with anti-aliasing) diagonal lines and curves. Several attempts have been made to accomplish this.
Since a typical application of this technology is improving the appearance of fourth-generation and earlier video games on arcade and console emulators, many are designed to run in real time for sufficiently small input images. Many work only on specific scale factors."
I suck at programming, don't ask me. Probably the best way and the easiest way. Still, i prefer custom high resolution sprites because you can revise the colouring scheme such as the shading/toning/shadow/artwork. You will need a team for that. And oh yeah, if you decide to change the sprite, improve the backgrounds too(more animation/3D?).