I'd argue that with woolly world the transition worked rather beautifully. DKTP also looks stunning, but since those sprites where generated from 3D models even in the snes days I guess the trasition wasn't as hard as with games like mario and Zelda that had pixel art based sprites.
I feel like a good substitute for 3D models when modernizing pixel sprites is going with handdrawn 2D sprites. It tends to preserve the charm of the original while also offering a satisfying upgrade. The recent Wonder Boy remake is a good example of that.
Handdrawn sprites in a 2.5D environment can also work beautifully and provide a unique looking charm to the characters while also having incredible looking environments.
Supergiant Games uses 3D characters models and worlds but their handdrawn cel shading for the environments and the way hey construct their character models and animation is very reminicent of sprite based games. Also they make some of the most beautiful games in the industry.
Ultimately using sprites is a tool to achieve a certain aesthetic or feel for the game and if a gamemaker thinks their game needs it they should use it.







