So I would assume that the PS5 would have the power to run PS1 and 2 games through an emulator? Why wouldn't they just do that? Seems an easy solution.
Nothing in the world of emulation is easy. Even the SNES isn't accurately emulated yet, i think there's one emulator that comes close to 100% accuracy, and thats kinda demanding, considering the age of the console. So it depends on how accurate/fast they want it to be, i can imagine they want close to the real thing, and doing that for ALL PS1/PS2 titles would be rather costly, time consuming and not even then trouble free. It's one thing to have a reworked gta vice city on PS4 then having native BC for all titles for all past consoles.
Personally I cant go back and play PS1 games, they just look so bad to what we are used to playing now.
Ye that's a problem with older 3d games. 2D games aged better somehow. The first unreal still looks nice at higher resolutions, while giants citizen kabuto doesn't. MGS2/splinter cell still look ok. Some age better then others. It's indeed worse for PS1 era titles as their resolution is extremely low, a higher res makes things worse in some cases.