A compressed PS2 ISO (if done correctly) is simply a compacted archive. Once extracted, the game data is identical to the original disc. You will not lose graphical fidelity.
Highly compressed games are technically the same game, just zipped up. Once extracted or loaded into an emulator, the quality remains virtually the same, though load times might vary slightly depending on your device. mortal kombat armageddon ps2 iso highly compressed better