There's some dissonance between the fixed texture of the characters, appropriate for actually sprite-based game engines (I'm not familiar with Diablo, but in Doom lightning based on palette abuse was fairly advanced) and the highly dynamic light sources reflected on the shiny ice (?) on the ground.

Also, are you going to display larger sprites than the small ones in the demo due to different environments, player-controlled cameras and so on ? More detailed textures would be a more valid test of how sprites appear in actual use.