in case anyones interested I put up some new shots of one of my two main retro pixel game projects I been doing.  This one being level 1 of a game called 'Hero - Celestial Force' which started off as a fan game of the game 'Hero' by my friend Ultimortal (who also created the popular 'Iji') before it sorta grew with more colors (though I am only using colors from a modified NES palette) and slightly larger sprites and 8 way shooting and stuff.  And it was only meant to be a 2 week project I began almost 3 years ago to the day.  Am very slow.
http://amon-devilman.deviantart.com/art/Hero-CF-221109-144395853

Ah that looks wicked - got proper nostalgia from those screens.

I use photoshop: 

1)  Make a gradient on a new layer with all the colour steps you want.
2)  Edit>transform>warp;  change the warp from 'custom' to 'arch' and change the bend to around -70.
3)  copy the layer into a new file
4)  Image>Mode>Indexed Colour in the new file, reduce to however many colours you want to restrict to, change dithering options in this dialogue too.
5)  Copy paste back into your art work, then hide the gradient layers. 
6)  Select the area you want it to cover with magic wand.
7)  Create a mask on the new gradient layer (3rd button on the bottom of the layer window)
  You're done!  But if you unlink your mask (the chain icon) you can move your gradient around in the correct area for adjusting.

Well that helps me on the lower set of tiles.. But I didn't really understand what you said about shading, and yeah I know it's going to take me a long time... Also, the screen is about 1200x800 so you should be able to see a good portion of it ingame.

I couldn't find a decent reference pic, except some (smaller) pixel art. I assume you've seen that since it looks like you've picked colours from it, so I'd probably just do dithered gradients similar to that.  If you have a decent reference, post a link to it - I'm not really sure what texture the building should have.

I remember once (I think my first pixel job) I was doing some work, where a shape was needed to be embossed on a small sprite of a door. I cut the shape out and did a layer effect in photoshop, then reduced the palette thinking it looked great and nobody would ever know I'd been so cunning. Although it never looked absolutely terrible, the tile was rejected and I ended up redoing the shape by hand. I was confused and annoyed at first. It looked better than anything I could do by hand! The shape needed at least a little AA to look like the shape at all at this scale (I think it was a star), on top of the effect itself. But actually, the hand done version was cleaner, more precise, easier to read and more consistent with the other graphics.

By all means, use all the tools available, but if you find yourself saying "better than I could do pixel by pixel", I'd suggest at least see what's different about the result, work out why it's better, and see if you could just apply this directly with pixels before settling for CS4's dark arts. A lof of games (fighting games for instance) use a lot of blend modes and glows atop of normal pixel art in software, and the world hasn't come to an end, so I wouldn't say it's taboo in itself, but shortcuts need a bit of scrutiny to make sure you end up in the right place.

Love this - really nice palette and lineless style. It does look odd that the giant flames on their backs aren't used as a source of light (where the gunfire is - in the animation anyway). Also, the flames - I expect them to be white in the middle, your shades seem reversed.