The reason for it being so low resolution is that the movie was made in 2001 and was one of the first films to be shot in digital rather than on film. Even professional digital cameras weren't all that great fifteen years ago, and the camera they shot on was limited to 480p30.
There were a few reasons that led them to shoot on digital despite the resolution disadvantage. First, as mentioned, they were one of the few films to shoot in digital. There were also stylistic reasons, as the gritty/unpolished look fit the bleak nature of the movie. The major reason, however, was out of necessity. All those shots of an empty London were done by actually closing off major areas. They were only given a very short time frame to block everything, and felt they wouldn't be able to get what they needed with all the set up time and transportation of larger film-based cameras. Between the time limits and additional cost of film equipment, they wound up going with DV.
All that said, I will agree that it doesn't look all that great. It is, however, true to the source material - it looked just as bad in theaters as it does on Blu-ray.