Umm, wow, that looks absolutely nothing like I was trying to do.
and how exactly is this supposed to help?
It helps because it fixes almost alll the things you've done wrong.
On a piece like this, thats very small, you can't do much dithering but that doesn't matter because your piece right now is well, I'm not going to sugar-coat it, pretty bad at the moment. You have an odd light source, very undefined, you have many useless colors(Just a bad color scheme over-all, it doesn't seem like you've studied up on the color theory or anything related to color, I suggest you do so) and not enough contrast and some features distract and overwhelm the eye like for instance the giant yellow buttons, dithering and AAing is the last thing to worry about.
Now, let's fix this, shall we?
Why is your light source very odd(It seems like it would be coming from the top-left, but other light sources on the body are coming from different directions)?
Keep it all on top, that way its less work for you to do with the sprite. If you stick to a definitive light source, especially a overhead one, you're less likely to make the piece look like its pillow shaded.
Why is your color scheme bad?
Its mainly filled with very bright, super-saturated and low contrast colors, I would suggest checking out the color theory along with this tutorial:
http://www.itchstudios.com/psg/art_tut.htm I would also look at other pixel art and see how coloring is done there(See how the hue and saturation changes as it gets darker/lighter). Not only this but according to you the background will be very bright so along with a bright character? You're trying to make him smooth, not difficult as hell to see. Learn to 'recycle' colors as well i.e. use a skin color that could also be a yellow button as the same color.
Why not dither so much?
You can't fit as much detail on smaller things, not only this but small things like this rely on contrast and other things, dithering doesn't help with that much because it makes things a lot smoother and makes two significant colors now blend and not be as significant.
I hope you actually listen to me and try to see what I did with the edit, if all of this is useless then I've basically wasted about a half-hour of my life on you.