PS1 games definitely benefit from the component cable through PS2. The PS2 outputs PS1 games in their original resolutions, and the component cables do give a cleaner image.
As for why your PS1 games look bad Burningdoom, it could be a number of things; bad cables, scaling (if you are on a modern tv), or it could even be that you prefer the softer look of other cables etc.
None of that makes sense, though, considering the PS2 games looked great, and PS1 games didn't. If the cable was bad, then the PS2 games would look bad, as well. And I know not to stretch out the image, I'm a VHS collector.
It was a pixelated mess on the screen when I popped in the PS1 disc. It was the exact opposite of "cleaner".
I also have a VCR hooked-up via HDMI (which VCRs are about as low-res as you can get), and it looks fine on the TV as long as I have the settings set to 4:3. My original XBox and Wii both look fine via component, too. So it's not the TV either. It's got to be the PS1 games themselves not liking the component output.