It's shot on 16mm film as a creative choice, because it echoes what Romero shot his classic Zombie films on and many other productions.
It depends what resolution they have scanned the film at really, but there is plenty of it there, so that shouldn't be an issue. Obviously though, its got a much more raw feel to it, along with the film grain, rather than if it was shot on a super sharp and clean digital camera, where they likely would be adding in grain anyway to get the gritty feel.
Perhaps Fox HD doesn't have the same bandwidth as other Sky Channels. Back when it was conceived, it was just a channel showing re-runs and likely didn't garner much attention anyway.