Alan,
There are several reasons. It is actually similar on the Flir PTS536 and 736 scopes.
#1) Base Magnification: Being a 12 micron scope, increases the base/native magnification. 4.2x on the XM38 compared to 2.1x on the Trail XQ38. The PTS536 is 4x as well. This impacts more of the background image than it does the image of the animal.
#2) 12 micron - 320 cores. Many manufacturers went to 12 micron - 320 cores because it allows more mag with less lens size. Since the Germanium lens is the most expensive part of the scope, it allows them to be very competitive with pricing. 320 core vs 384 or 640 has less resolution.
#3) Objective Size: With the smaller lenses necessary to get higher base magnification, leads to more of a struggle with overall image and impact due to humidity.
These are three factors. I can say, for sure on the PTS536, although the base image doesn't look as good as the Hogster for instance or the Trail or Apex XQ series, animal detail is very good.
The Thermion XP series has.a much better image. 17 micron 640 core.
The next step up which is 640x480 in 12 micron will be the sweet spot eventually as it already is for Trijicon and N-Vision. However, for those looking for higher base mag, the 12 micron 320 scopes work well. Those looking for a wider FOV, will be better served with the 17 micron scopes (like the Hogster) or going to a 12 micron 640 scope.