I do see where you're coming from, and agree it sucks that they've went backward in quality in this case. To my mind those are implementation details that Apple screwed up. It doesn't invalidate the basic idea though, which is to move the brains of the device into software so that the same connector can be used for a multitude of different functions, some of which don't even exist today.

Admittedly, I'm not privy to whatever design decisions the team that implemented the connector made, but I see no reason why it couldn't have the same fidelity that a straight hdmi cable would have. If I guessed, I'd say that they said 'good enough, ship it' instead of continuing to refine it since they knew they could always send down an update later.