You're supposed to convert it to RGB, so that's fine. But pencil with color might be your issue. Try the Bucket Tool on Normal with 100% Opacity and 15 - 25 Tolerance.
Here's my example of the same (or similar) colors with my method.

My reasoning for Normal is because sprites use solid colors. Using the Color function with certain colors will result with different effects.
Ex: Using the Color function with white will make the color gray.
I understand that I can use normal and tolerance, but It makes the sprite over saturated. It dosent keep the proper shades of the same color and thus, makes it look kinda flat.
I can try using soft light set at 10 with pencil to get it more rich and also not ruin the shading.
EDIT:actually I might set it to 35