They chose the graphics to be like this so people would be nostalgic for the game, and so it stays true to its original style. Having the game look like Twilight Princess would just look weird.
I don't think Nintendo's focus was nostalgia. They wanted old and new customers to buy it, more money that way. If they just wanted their old fans to buy their games they wouldn't have even improved the graphics for the 3DS. The people at Nintendo
aren't idiots, if they improved the graphics old gamers would still buy it simply because it's LOZ and so would newer gamers who just started playing on Nintendo consoles. Currently someone who is just a regular gamer, not a fan of any particular series is jut going to pass right by the game because of the graphics.
I hate to say it but the people who started out playing on the N64 aren't their only audience, they really should have improved the graphics if they wanted to appeal to the community as a whole. Sure maybe you, or I are just fine with the older graphics and maybe even prefer them, but that dosen't mean everyone else does. And who said it had to look like Twilight Princess, there are plenty of ways they could have kept the not incredibly realistic, medium bright color scheme while still improving on the graphics.
Graphics don't make a game but they sure do help.