What some people in this thread don't seem to want to realize, is that whenever you save or sync an image to an iPhone (doesn't matter what method apparently, I previously thought it was only iTunes synced media) color dithering is added no matter what.
I have conducted a comparison using a wallpaper I *know* has absolutely NO dithering at all. If I sync the image over (using iTunes) from a lossless PNG to the phone, and then compare it to the exact same image but transferred by SSH, there is a noticeable difference. The SSH'ed image has no dithering.
iTunes also does this to cover art, while Media Monkey does not. I have had one album cover in particular that is solid gray (one single color) that when synced over Media Monkey shows how I would expect (ie, one solid color), while if synced through iTunes, it adds dithering to a solid color image.
Doing this is completely unnecessary as the iPhone LCD actually has a decent color depth capability. Up until this thread I had been very surprised that I couldn't find anything about this issue.
Also, before anyone says it, no, it is not my monitor that is hiding already present dithering in the source image. I know what dithering is and what JPEG compression is, and I'm viewing the source images on an NEC 2490 LCD.