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The GBA was limited by graphic processing power more than anything, IMO 32bit doesn't say much for what a system is really capable of. The developers came up with rendering engines over the years as they learned how to squeeze every ounce of power out of it, and it almost got as good as Metal Gear Solid (more of a proof of concept though).
Resolution will improve over time, but as far as I know there aren't LCD screens with pixels small enough for the hi def you're looking for. Besides, they already use a technology similar to hi-def screens and PC's, it's LCD with a specific signal to each pixel instead of CRT with a projection on a photosensitive layer (or the transmission signal designed for such a screen as used with traditional TV's). I don't think pixel sizes have changed all that much over the years, handhelds probably have some of the smallest pixels because it's more important to get a crisp image when viewed up close. Screens can only get so large before they start to lose that handheld factor, I'd say DS is about 75% of what the max should be for an on-the-go fit-in-your-pocket gaming system, which is a safe level.
I somewhat agree with what you say about the gap between the screens, but it hasn't bothered me that much since it's usually only noticeable during "tall" movies or in menus with a background stretched across the screens. It would be hard to get it really close while keeping it foldable anyway.
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