btw, after playing SMB2 again, SD and I observed that the game itself employs the sprite section defined palette-switching that I described earlier.
IE, have a look at Mario's sprite:
How many colors do you count? It's actually five. A single 2-bit palette only allows for 4 colors total, one of which must be assigned to be a transparent color (lest all sprites be square shaped), with 3 usable colors. So Mario should have 3 colors, which are used up by the red, blue, and his skintone. His eyes, though, are white and black. They use a seperate palette. The same palette that the shyguys and the tweeter both use, in the above screen. They're outlined in black, I'll mention, since DS seemed to think that was an issue.