What Image format are you using? I'd recomend not using bitmap.

PNG has very good compression with no quality loss. One project, I used Jpegs (Just add JPEG to the uses), but only for images that didn't need to be drawn with transparency.

I'm not sure, but to use 8 bit sprites, the DX surface has to be 8 bit as well :?:.

There is a way to load sprites into a ImageList as you go, I'll have to dig around in some old code to find a sample...