I'm wondering why they went with a dragon boss that flipped from one solid color to the other - wouldn't switching between a checkerboard pattern of the two colours have worked better?
Also, having two separate ditherings of each sprite would use twice the memory per sprite, and that dragon looks to be composed of multiple sprites and possibly multiple frames of animation per sprite. Most games were memory limited, which means the devs had to make several compromises just to get the game to fit at all.
I wonder if the demoscene has some nice examples where they are more perfectionist about this.