is it limited by the electronics, the hardware? or given time and effot, it can be accomplished?
Hardware. If it could support HD, it would mean that the hardware was significantly faster than needed to support the features that are actually implemented. That would cost more money without any good reason. Plus, if they had this capability, they would probably enable it themselves, since it would be a big selling point over the competition.
Companies do intentionally limit features to enforce market segments (manual control is an example) but it makes no sense to do this in a way that makes the low end part more costly to produce.
The fact that the cameras can only handle a modest increase in video quality with the compression overrides strongly suggests they are already operating close to the hardware limit. A large increase in resolution would take far more cpu/memory/disk bandwidth.
