the way it's divided now makes him look like hes in drag.
i think the most recent one with the older colors is the better of the two - but i would clean him up a bit:

its just a start - still a ways to go.
things I've noticed you've been doing which aren't going any lengths to improve readability:
you have over half a dozen ramps that are good in the color parts, but the lights and the darks are really close and can be removed.
you dither in such tight spaces that you are defining false forms instead of smoothing. keep forms together etc.
your forms are rather skinny. the fact is, small sprites do better to be pudgy or simple-shaded.
good luck

fireball will work well if it is set to additive light, but if it is solid, i would make it twice or thrice as bright