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Level Design What do you use to convert images to 8 bit format?

TheGimp should be able to do it.
Paint.NET too, I guess.

Both are free.

You can just use 24-bit bmps as well. Not ideal, but if it's just for the level preview...
Just make sure you set the LoD setting of the imported texture to Interface instead of World or else it will look horrible if people have their texture detail turned down. If it's set to interface it is always shown in Highest quality.
 
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