A problem with this algorithm is that it's pretty slow. It would be hard to use it for real time scaling.
I think that it's pretty cool though for any precalculated conversion to vector format. It would also be pretty cool if there were software that allowed you to create a pixel art image with a live preview in this format and the ability to export into a vector format.
One of the benefits of pixel art IMO is that it's got a pretty distinct style and its simplicity and restrictions means it's easy to be aware of composition where if you are given an unrestricted canvas that freedom can make it hard to know where to start. If you are given a 8x8 pixel grid to indicate "happy" there's only so many ways to do it, a symbolic heart, a little smiley face, etc. Given a whole sheet of paper you'll have more difficulty.
With the high res displays, there's more to consider than just the upscaling of old programs, the fact is people (especially indie game devs) still want to work with pixel art, and the number of titles with the term "8-bit" in their name that have come out recently. Part of that's because it's in vogue now, but a big part of it is simply that a poor artist can make a passable 24x24 sprite.
But it's still a shame that on high res displays they end up looking like a blocky mess. If you had a program that let you author your sprites under the same conditions, but let you preview an upscaled version and left you with a vector image (or high res texture with mip maps) you can make use of the fidelity while maintaining the simplicity. I think that would be cool.