You can take advantage of the new graphics capabilities of the TBimap and TJpegImage components of Delphi 3. When Delphi 3 loads a bitmap image, it keeps a copy of the device independent bitmap image it loads from a file in the background. The TJPEGImage component is very good at color reducing a full color image down to 256 colors. By Loading the bitmap, then assigning the image to a Jpeg and saving it to a temporary ".JPG" file, you can then load the temporary file back into a TImage with much better results than simply loading the bitmap file unconverted. The following example demonstrates the necessary steps to achieve these results.

Example:
uses JPEG;
procedure TForm .Button Click(Sender: TObject);
var
  JP : TJPEGImage;
  IM : TImage;
  TempFileName : string;
begin
 {Pop up a Open Dialog}
  OpenDialog .Options := [ofNoChangeDir, ofFileMustExist];
  OpenDialog .Filter := 'Bitmap Files (*.bmp)|*.bmp';
  if OpenDialog .Execute then begin
   {Create a temporary TImage}
    IM := TImage.Create(nil);
   {Load the bitmap file}
    IM.Picture.LoadFromFile(OpenDialog .FileName);
   {Create a temporary TJPEGImage}
    JP := TJPEGImage.Create;
   {Priorty on quality}
    JP.Performance := jpBestQuality;
   {Assign the bitmap to the JPEG}
    JP.Assign(IM.Picture.Graphic);
   {Free the temp image}
    IM.Free;
   {Make a temp file name with the extension of .jpg}
    TempFileName := 'test.jpg';
   {Save the JPEG to a temp file}
    JP.SaveToFile(TempFileName);
   {Free the JPEG}
    JP.Free;
   {Load the temp file to an image on the form}
    Image .Picture.LoadFromFile(TempFileName);
   {Delete the temp file}
    DeleteFile(TempFileName);
  end;
end;