Why does the hubble telescope generally still outperform the palomar telescope?

The Hale Telescope at Mount Palomar Observatory is much larger than the Hubble Space Telescope, but size is only one consideration among many. Mount Palomar is here on Earth, which has a thick atmosphere, and the atmosphere blocks a lot of the light - even on clear nights. And during the day, scattered sunlight prevents good astronomical observations.

More specifically, Mount Palomar is fairly close to San Diego, CA, and the city lights of San Diego cause considerable light pollution. Weather, even the typically good San Diego weather, degrades observations. Aircraft sometimes fly overhead.

The Hubble Space Telescope is in orbit. There's no atmosphere, no weather, no light pollution, and no atmospheric scattering - because it is above the atmosphere. The telescope may be smaller, but the observing conditions are MUCH better!