This is cool code but can someone explain why we'd need this? Do we not have a common lossy format that supports transparency? My primary concern is that people have an expectation of what PNG means and this completely subverts that.
What you are getting is a lossless copy of an image that has been cleverly preprocessed to be easier for the PNG algorithm to compress while not losing noticeable visual quality. The result is good compression and transparency support (which JPEG doesn't have).
Photoshop uses the same tricks for "lossy" gif that this article uses for PNG.
LZW is just a very poor compression. Even best case is taking ridiculous amount of bits (you can only add 1 byte to previously used pattern, so it's sequence of symbols for 1+2+3+5+6+etc. pixels resetting every 4k iterations), so there isn't even room for improvement.
So, GIF is awful. Should be forgotten.
8-bit palette and crappy compression do not matter when you offer exclusive features.