I would say it's undershaded, but I think that the intention is to pull of the EGA look, which it does rather well (Circa 1989-1992 graphics card that could only have 16 colors on screen at a time) I do get the feeling that detail density does still vary a bit too much. The small sprites are beautiful and readable; the larger sprites have large areas of no detail that make them appear more flat. I'm just not sure...particularly about the big pink...thing, the flying famicom and the strips of bacon?
In short: foreground characters are strong; smaller sprites are strong (especially the explosions); but the pink creature seems a little too flat to me. Even with the color restrictions I think its shading could be better handled.