There does not seem to be that much data here to deal with. There are 4K pixels in a 128X32 DMD, assume you use a whole byte for intensity, you end up with 4KB per frame. There is finite number of frames with animation sequences that often just repeat. Not sure how many a game has but it cant be that many. The rest of time it is mostly static info with small amounts of update (players score). Now if you wanted to do a simple replacement with new hi-res graphic you would essentially be doing what the ColorDMD guys I think are doing, figure out which frame it is, replace with new one, if there is random data (ie the scoring frames), map that part of it directly. If you want new DMD frames for events not currently captured that is alot harder and you would need deeper access to the underlying events.
You end up with capture complete frame, determine which one it is (should be simple hash), drop in new template, convert any dynamic data, display, repeat per refresh rate on DMD. I was hoping these guys would sell me the DMD and provide a programming environment so I could customize the current animations all I wanted. Adding some nice blood splatter to Big Buck Hunter would be first order of business.