I'm the person behind the project (and I have a funny feeling I used your 8x8 text driver back when I was trying to learn how the Propeller worked). Anyway, there were actually a few reasons behind the 160x200 video mode:
One was simplicity for the user. When this was all just an idea, I often compared it to a "Commodore Junior" in terms of functionality, and I wanted to keep it simple to learn from and have fun with. I thought something like the C64 or Plus/4's multicolor graphics mode would be the best compromise in terms of letting you make graphics/games but also having readable text output. A lot of old C64 games did just fine with 4x8 multicolor text, and even the VIC-20 did passably well with some of the 40-column extensions people wrote for it.
Another was simplicity from the standpoint of designing the thing. I actually looked into trying to mimic most of the VIC-II's functionality, including being able to mix low-res and high-res on the same line. I just couldn't convince myself there would be enough cycles to pull that off, or at least I'm not sharp enough to manage the feat, particularly with sprites also involved. You could do it with more cogs (Propeller cores) but since the Propeller is handling so many jobs (kind of like the TED on the Plus/4 series), there were constraints there as well. From there I went back to thinking about separate high-res and low-res modes, but that circles back to the above point about complexity.
Yet another reason was that Cody actually liked the multicolor graphics modes (and I do realize how that sounds). When I played around with different video graphics he got really big eyes and a smile watching multicolor tests on the TV. He also really enjoyed YouTube videos of Commodore Plus/4 games done in the multicolor mode it had when I was reading up on the TED. If it got his attention I found a way to work it in, and I also think a really smart Pomeranian isn't necessarily that much different from a really young boy in terms of researching your audience for this kind of thing.
(True story: At one point when I was showing Cody the Propeller breadboard I used for experimenting, he started slapping the RCA jack with his paw with a curious look like it was going to do something. I think he saw me plug that into the cable so many times that he concluded the RCA jack is what made it run or something.)
Excellent choices, and you probably did! Potatotext was one of my first Propeller projects. I wanted a nice text display for future learning.
I think your project is great, and I am thankful I made the final comment I did, because you did aim for specifics and appear to have nailed them.
Great work! I am likely to build one.
I know the developer of that chip personally and will make him aware of your project. He will likely think it is really neat.
Another true story:
I stepped away from electronics and microcontrollers, until a friend sent me the datasheet. I ordered one immediately and had a blast! Got caught right back up. Met the developer, who said I* was who he made the chip for. We have since had a running conversation about this stuff and a lot of fun.
*That being anyone looking to get into this stuff no matter what age, or experience level.