To be fair, the Final Fantasy games blatantly re-use palettes for things, much more obvious examples being the Black Mage sharing colors with the Monk and Thief, or the Fighter sharing colors with the White Mage and Red Mage. But I still think it's a mystery.
I kinda liked the GSC sprites, they did excellent looking sprites with just 3 colors and transparency. Some came out obviously wrong like the -Saur family, while the rest came out surprisingly good. The cross hatching though is very hit or miss.
Also, regarding your previous idea of using sprites to overlap the Pokemon background graphics, that sounds like a great idea. However, there's a tiny problem with that. The Pokemon attacks use sprites, and they would likely cause flickering once too many of them are on the same line. The GBC, despite being miles ahead of the NES, still suffered from the flickering problem. Only difference is that the screens are way narrower (160 vs 256), so there was no need for more graphics on screen. Shantae on GBC is designed the way it is because of flicker. Shantae herself uses loads of palettes stacked on top of her, which would cause flickering if more than 2 enemies are onscreen.
Just curious, but how tricky would it be to make the health bars change color? I was thinking the best way to do this would be to have BG palette with the colors black/green/green. How this works is that the one green is for your own Pokemon, while the other is for the opponent. When your Pokemon reaches 1/2 life, the first green will then turn orange, while the second green stays green since their HP is above 50%. Sounds like it could work? Also, is there enough room for there to be 8 different tiles for the HP bar, with each bar being 1 pixel smaller than the last? Or how does this game handle the HP increase/decrease animation?
Also, what mapper does this game use, a proprietary Chinese mapper? If so, what would be the most realistic mapper this game could use for reproduction purposes?