Resolution is low as it was the first time it had been done afaik. There's some technical details in the BBC article. Summat to do with only connecting a small number of actual cells up (177 specifically). More a proof of concept kinda thang I'd think. No idea how far along it's come since then but presumably leaps and bounds given that was 1999.
Incidentally, I should probably point out the research is into stuff like "curing" blindness and the like - not just some bloke with a grievance towards cats.
As for why cats see humans as cats - not so surprising really. Just really weird to see it for real. Just think how easily people see human faces in things that are clearly not human.
Only has to look roughly like a human face to see a human face. Same goes for cats it seems. But is kinda spooky to see the extent of it