Jeremy,
Indexed palette is definitely what I want to include.
I've always hated that even though memory limitations forced me to include it in my hardware designs. I was so glad when we left that behind at the turn of the century. On the other hand, it was a neat way to add amazing water and fire effects to an otherwise static background:
http://www.effectgames.com/demos/canvascycle/
I wonder how well this still works in Squeak? When people make changes, they tend not to test things that they don't use themselves leading to "bit rot". Since I ran Squeak 3.x on a machine with only 256 colors I know it worked back then. But I never tried the indexed modes when the hardware was true color.
As far as B*W/1bit, I'm actually a big nerd/fan for black and white displays. They silently put a focus on making things rather than deciding how they should look...because let's face it, if you're not busy deciding what color to make your car, then you should be already making your car!
You worry about textures instead :-)
Since I'm looking at the Amiga 500 and Atari ST as main inspirations on how to make the project 'appear', I've been kicking around the idea similar to what you mentioned, but with both included: namely a high resolution b&w mode and low resolution indexed palette/color mode. That way, if nothing else, the high resolution B&W might be considered a way to get more screen realestate for etoys scripting that gets complicated or for people who are just discovering the smalltalk/squeak underneath while the lower, color resolution would be ideal for 'presenting projects'.
Well, the ST actually had separate outputs and monitors for the two options. And the OLPC machine had a black and white mode for outdoor use (you needed the backlight for color). Even the Xerox Alto, which was famous for the high resolution black and white monitor, had an optional (and rare) color board.
Etoys doesn't have a separate development and presentation mode but Scratch does so it seems people are ok with that.
It's still undecided at this point, but is also going to heavily depend on how fast/much I can learn smalltalk as I go. I'm not a programmer in the way many of you are, I'm more of an artist hacker, and thus my abilities to bring such things to life is limited by this!
There are many levels of programming and what you want to do is a bit advanced. It is always hard to do this kind of project by yourself instead of as part of a group of people with different talents.
-- Jecel