The palette created by this function often looks quite awful (at least it did on all of my test images). A better way to convert your true-colour images is by first making a resized copy of them with imagecopyresampled() to a 16x16 pixel destination. The resized image then contains only 256 pixels, which is exactly the number of colours you need. These colours usually look a lot better than the ones generated by imagetruecolortopalette().
The only disadvantage to this method I have found is that different-coloured details in the original image are lost in the conversion.
