I agree with Turrican3. Steve's pic has too much dithering it looks like a ST conversion. All that dithering would also clash with the smoothness of the sprites. The colors look quite different from the arcade. Lot of primary colors while the arcade has lot of greys.
Plus, if you decide to add such amount of manual refinement you must be able to support it for the whole game or it will look out of place.
That said I'm admired of what you are creating here you all are awesome.
I hope you can post soon a new video on youtube.