The dithering is a nice effect and looks quite good here, however your original problem (banding discounted) is that your shading doesn't describe the shape all too well.
edit: also I apologize for the lackluster quality of my own shading, I had a slightly hard time understanding how the coat works in 3d.
It's a good idea to start out your sprite with some pretty stark cel-style shading, that you then soften up with dithering in areas where there might be smoother transitions needed. It's also easier to avoid banding when your shading isn't hugging the edge of your character, as often is the case when you are unsure about where they should go.
Regarding figuring out where shading itself goes, it's notoriously hard to find any substantial advice on the 'net. Most folks just go "imagine where... The light -doesn't- hit!" which to me was always unhelpful. (mainly because those tutoring this were experienced enough to have forgotten exactly how they went about learning all that stuff in the first place.)
If you are having trouble with this, I would suggest finding different shaped items, like spheres and cubes and other stuff like that, putting them on a table in a dark room and pointing a flashlight or something at them. That way you'll be able to study how light moves on different surfaces.
