Look at how much darker the dark shade is on the reference than in the sprite. There's much more contrast there. Put the shading under the eyebrows to give the face depth like in the reference. The hair is going to be the most important feature though; it is what makes this character instantly recognizable (to me at least). Terley's edit is well done, but no need to shrink the ears like he did, although they are smaller than the ones you had -- make them roughly the height of the eyes, and pull the top curve back further on them. The character has a sort of poochy lower lip too, that's important. Neck looks way too long compared to refrence.

Closer study of the reference should be sufficient to get a good resemblance I think. :3