The SBC display is certainly capable of very good quality images, just take a look at the flickr screensaver or some of the background images for examples. I personally don't think the issue point out is due to colour space reduction (24bit vs ~18bit really isn't much of a visible difference) but due to a non-resampling (or at least non-optimal) resize. Going from 700x700 (or whatever) to something like 150x150 is a big drop and will lead to aliasing and contouring if not resampled properly, which I also notice on some artwork.
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