That's what I mentioned above - Dithering does seem to solve it, but it looks like you lose the advantage of hardware-accelerated rendering (=less strain on CPU and therefore battery) as you have to choose the non-accelreated i2700G renderer. Dithering doesn't look selectable on the hardware i2700G renderer for some reason; at least on my version of TCPMP - 0.66 (not e).
Anyway, I had a quick look at VirtualDub. I couldn't see a 16bit colour
filter as such, but an option called Colour Depth that sends a 16bit colour stream to the encoder. Unfortuantely, as you said, DivX at least only encodes at 24bit and 32bit. Grr.
So I saved it uncompressed as 16bit, and then loaded it back up into Vdub, changing it back to a 24bit stream. But of course, it's already been reduced. :approve: (are you lost yet? ;) ) So, saved that as a DivX, switched to i2700G Decoder (hardware), and it's looking pretty good!
For what it's worth, maybe it's a bit of a hassle, as there's an extra encoding step involved in changing the depth, at least with VirtualDub. Maybe there's another video encoding app that can do it properly?
Maybe it'd just be easier overall to just use non-accelerated i2700G with TCPMP doing the dithering, to save yourself from having to painstakingly re-encode all your videos...!