Don't let the graphics fool you, this game isn't a basic 8-bit game, it is resource intensive. It frequently uses between 1-1.5GB of RAM when running, and it frequently suffers framerate issues when exploring new chunks. Making the graphics look better would just make an already resource hungry game even worse and it would have even greater difficulty running on older PCs. Presumably, it will be optimised in beta so as not to be quite as resource-hungry as it is now, but by that time changing the graphics would be a mistake as they have come to be part of its charm. A more detailed creeper skin wouldn't be able to express the same sense of threatening sadness that the current skin does.
Very true. Notch has also said that, even though they've hired an artist, the game's graphics will not become higher res or anything. It makes my Pentium 4 desktop chug already, even with the graphics turned down. It's really not hard to see why considering it's pushing a lot of polygons and has a completely deformable environment. I've noticed if you change the flow of any water it really nails your CPU--the water calculations seem to be pretty intensive. The light calculations are also known to cause some issues which are being worked on.
Yeah, my home machine is pretty old, so I have to keep the draw distance on short, or else it really chugs at times. It can be kind of annoying since I can't see the sun too well, but the alternative is mistiming jumps on normal, which can be deadly if you're inching down a mineshaft.
I also litter my path underground with copious amounts of torches. In fact, I even like to put a door at cave entrances, just to prevent that slight chance of a creeper wandering in behind me...
I put torches all over my caves, too. Whenever I feel like I'm lost deep inside a cave system, I dig my way to the surface and set up a lighted entrance so I can find it again in the future. I need to make signs so I can label routes within the mines, though. Too easy to get lost as it is.