I think it is, again, a way to work around limitations. Economic limitations in this case rather than technical.

Compared to modern HD graphics, pixel art is more affordable because you can hide a lot of details you would normally have to work on behind these fat pixels.

And the most interesting trick, to me, is that pixel art looks sharp! The non-CRT-like square pixels is a feature.

Blurry usually doesn't look good, it is as if your eyes can't focus, or that you are looking through a dirty window, it naturally registers as a problem. Real life has details and you are missing them. With sharp pixel boundaries, you are telling the brain "there is no problem with your eyes, everything is fine".

It is not the only way of introducing artificial details to make low detail pictures look fine: scanline effect, screen door effect, ostensible dithering, etc... But pixel art is a good compromise, in addition to being a recognizable somewhat nostalgic art style.

That's my theory at least.

Good pixel art is quite difficult to make. This default pixel art usually isn't; it's just not that great.

Maybe not for long. It seems to be the art style most difficult to get right for diffusion models.