Am I missing something? (Image conversion for eips and others)

First off, I want to say thanks to everyone for all the information which has helped me get my kindle jailbroken (and I think you guys did before when I did one many moons ago).

I'm not meaning to step on any toes here but I think I'm seeing a mistake repeated and just want to check in (it could be me misunderstanding).

So when people are converting images for display on eips with ImageMagick, they are converting to 8 bit PNG and it's working fine (and it works for me). However, I am seeing this parameter in the examples I see on this site.

-dither FloydSteinberg

Now, that's a fine dithering option. However, it's my understanding that without the colors option, it won't properly compress the color space, you'll have 256 levels of grey, stored in 8 bits and no dithering so you'll get banding etc (my testing indicates this to be the case. I could probably post pics). This needs to be changed to

-dither FloydSteinberg -colors 16

which will drop the levels to 16 and allow the error correction to occur.

I would also suggest trying the other options for dithering as some work better for some images than others (I did some work a few years back dithering images for thermal printers)

Edit: Interestingly, when I google for the correct form, I get two results which are not from this site, but do link back here (but not to anything apparently relevant)