I think that the problem lies in how many colors the G1 can display. Ive been doing some digging and it seems like it can only display up to 64K colors. Dont hold me to it, but if thats the case...this device is really letting me down.
If that is the case then I myself will be bummed =( You would think that it's a given for it to display more colors. But regarding your theory though, it does seem plausible. I'm switching with monochromatic walls and they do at least seem a little bit better than full color ones.
Hopefully its really not the case. I really want to find out the proper settings for the wallpaper so that I could contribute a couple of custom walls...