I was going for a straight-on light source, and no dithering caused a pillow shaded effect that was even more hideous.
Dithering won't make it not pillowshaded. A straight on lightsource is exactly what pillowshading is (Well, that and a combination of trying to use shading to achieve depth regardless of shapes).
Quick and rough edit on the central area.
First off, as I kinda said before, straight on lightsource is bad, and should be avoided!
Your pillowshading not only has the unfortunate effect of looking rather bad, it also serves to make everything look super segmented and disconnected, so, to reiterate- or translate, I guess -TheDaemon's comment, before shading something think of how the shapes are connected. Why would there be an indent deep and steep enough to be significantly darker then it's immediate surroundings?
Also, hard to judge but you might know this already, but in earth creatures, all movement is accomplished by muscles contracting, so whenever your mouth opens, the muscles that are pulling on it portrude more, which is why there's the part sticking out in my edit on our right. This is of course un-needed is the creature has a hard shell.