I've had the same problem. Does anyone have any ideas?
Edit: I found a bit of a workaround. Once I had all the textures replaced with BrawlBox v0.59, I switched to SmashBox v0.57 and replaced the hair texture with that version and it worked fine. My guess is there's something messed up with the palette algorithm in v0.59 or something.
I read through the entire topic, and to be honest, I didn't understand what to do with your post. Couldn't I just send you some of the files and you could help me with them?
Alright, before anyone jumps at me, I tried following the guide, but it was not very helpful for me. I found it a little vague. I've tried using Photoshop CS3 and Paint.NET to get Lucas's FS eyes to work. I even tried making them completely transparent. But, for some reason, in game his FS eyes come up weird. Transparent shows as black, and the color will show as white and yellow, regardless of the original color. I've even tried using SmashBox and ASH, neither of them seem to help. I can post screenshots of what I'm talking about if needs be.
The animations are interesting, but they are quite jumpy. The attacks look cool and have decent damage, but the knockback is quite small or in an odd direction. There's almost no sounds for when he attacks.
If you fix those few things, it would be perfect IMO.
BTW, the texture (I know you didn't make it) is messed up in the hair.