To get any kind of light smoothness, each colored light should be aligned to a color band on the palette. Even so, maybe not enough color interpolation.
A standard lit could be loaded and translated without creating a new lit format, with some adjustable tricks in the engine to align it with the palette.
Just imagining the fastest way for software engine to get some color, if it's not too horrible-looking. A little horrible is OK. Maybe will try it sometime.