fMRIPrep Output space T1w producing low-res results

Not an expert in this, but here is my take, from reading other threads. The T1w-space func image is aligned with your T1w image but it isn’t upsampled. The reason is to preserve quality. It is also smaller than your original, because for some reason, fmriprep removes the extra padding around the brain, shrinking the bounding box to the smallest dimensions possible. (This is quite annoying for me as the nominal resolutions won’t match between them and I have to transform whatever mask of atlas I want to use.)

So you haven’t lost any actual image quality, just empty voxels. If you want the images to match, I guess you need to either warp your image or ask fmriprep to output in T1w:res-2.
Perhaps this or this or this or probably this would help (ignoring the MNI reference)