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If you turn off dithering, the colors might be less "accurate" but it should compress better. Color accuracy doesn't seem to matter so much in this application so it should be acceptable.

By converting to indexed color first (in Gimp: Image > Mode > Indexed) we can turn off the dithering. I would be interested to know if this looks bad on anyone's screen. http://picasaweb.google.com/lh/photo/asf1q9Da0w0PwN8PoadpVtM...

That looks very smooth!

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