It comes down to GPU performance ...
In order to maintain the per-pixel image quality of a PS2 game that ran at 480i @30fps and display it at 1080p @60fps you would need (in the range of) 10 times the processing power. At the same time, the pixel shaders that produces the material effects that people associate with PS3/XBox 360 games also require a massive ammount of processing power, and it would take somewhere around 10 times the processing power of the PS2 to match these effects at a resolution of 480i @30fps.
The PS3 is a powerful system but it falls far short of being able to enhance the per-pixel image quality to the level people associate with "HD" games while at the same time increasing the resolution to 1080p and maintaining a decent framerate.
