I'm inclined to agree with Jad. I think adding that particular shading has confused the readability of the character, as it tends to create a distracting horizontal line across the face, and recedes the face itself via darkness. The focus has shifted to looking at the forehead, which isn't really helpful for characterisation.
The body also reads poorly; it's hard to tell what's going on. Also seems to have a bit of pillow shading going on. Honestly I would borrow some from the Zelda techniques shown in
one of bengoshia's links. Cut it down to just 2 shades and keep the focus on items that are important about the character. For example, with Link (from Zelda), the focus is pushed on his face and sword. To that end, it may be helpful for you to tell us a little more about this game and what purpose the character fills in it, so that we can better gauge what focus is appropriate.
Regardless of focus points, I believe the pose is far too stiff and lifeless. Granted, Link's sprite has a fairly similar pose, but note the use of asymmetry to add flow and interest to the character. You may want to consider expanding the character design to allow for similar opportunities.
Another thing you may want to consider is colour use. At the moment the sprite is dominated by the skin/tan colour, which flattens the piece and lowers the visual interest. Looking at the Link sprite can teach some more lessons in this respect, as there are flairs of blue, yellow and red in each pose. This also helps the player to quickly orient the character in space at a glance.
Summary: cut back to a couple of shades of a few hues, shade only to focus on key areas of the character, give each hue a relatively balanced presence, consider asymmetry for flow.
