As for making the wings+arms thing work, I'm not sure. Maybe he ought to be more of a human biped with wings, rather than a humanized owl.
Head is hard to read I mean, tough to discern what is what.
Often, outlines are completely unnecessary. But tinting them the color of adjacent colors may be beneficial, yes.
Your dither texturing, I think, is excessive. You got 50/50 dither going on that doesn't really help to describe the owl's form at all.
Try for an overall simplification of this guy, decrease the details. For instance, give his wings less, but larger, feathers.