Back in 2008 when I was working on the Daydream -demo for the GP2X I was looking for a way to dither images for 16-bit displays. We used various linear gradient backgrounds and on the GP2X the banding was a big problem. I did some research on the matter couldn’t find a solution so I devised my own.
By preprocessing the RGB888 images into RGB565 and adding some simple dithering, the lack of color depth is hidden very efficiently. It may not be perfect but on the target device the result looks very good. Below is an image that illustrates the problem and the result.
I wrote a simple plug-in for Adobe Photoshop for processing the images. Support for other bit depths than 565 might be added later. The package contains 32bit and 64bit versions and has been tested on CS2, CS4 and CS5.

Hi!. This looks very cool!
Is it open source?. I would like to learn how you did that.! Maybe you are willing to send me the sources?.
Thanks!
Burning