There does already exist a hack that gives the AGI interpreter 256 colours for both the pictures and the views, where the pictures are no longer vector based but bitmap. The resolution is still 160 wide though, so I assume that that is still too low resolution?
When you say upgrade the AGI engine (fork the code), are you referring to the original AGI interpreter code? If so, unfortunately we don't have a full copy of all of the original AGI interpreter source code. We are lucky to have about 80% of it. The people that implemented the various hacks for the original AGI interpreter would have hacked in small machine language hacks into the executable. It might be possible to do something like that to provide what you want, but I think it might get a bit tricky, as it isn't as "easy" as what the 256 colour hacks did. The problem with a higher width resolution is that it changes many things across the interpreter. The LOGIC file format will have to change, for example, since setting the position of views on screen will need to represent a number bigger than 256, so will require more than one byte. That's just one example. I personally wouldn't be able to update the original AGI interpreter to do that. AGKorson understands the internals of the original AGI interpreter better than anyone, so could probably give a more authorative answer, but I'm guessing it would be a lot of work, even for him.
If you are not necessarily referring to the original AGI interpreter, but could instead live with one of the fan-made AGI interpreters (of which there are quite a few now), then the problem would become easier. The updates to the fan-made AGI interpreter wouldn't be too difficult to make, but you'd then require an AGI editor suite that supports the new formats. As I say, the LOGIC files would be different, the PICTURE and VIEW files would be different. An editor like WinAGI wouldn't understand the format, unless a special fork of that was also created.
I think that the "easiest" way to achieve what you want would be a custom build of WinAGI and AGILE. It would then be its own thing, but closer to AGI than AGS.