Good edits from everyone, but they all more or less give up on the fog which was the main challenge of this piece IMO.
I guess it can be done, but I believe muddiness is the polar opposite of pixel art in general
fog can be done.
but because fog usually is just moist in the air and it's soft it needs more colors.
The main problem there will be to get the edge qualities right with just a small palette.
The more interesting challenge will be to get the overblending of the light and the cloudiness of the fog strands right.
Guess it can be done, but will be a lot of detail work.
Quick rough edit just to suggest the look: