This is an idea I've been meaing to try out for quite a while and last night I finally took the time and made a quick test.The idea is to make pixel graphics with dynamic lighting using normal maps, but still keep the hand made, low res pixelart feel. I figured I'd have to use a a small palette for the normalmap as well. So here's a test I did with the character bengt from an old 2d project of mine.
I used a 25 color palette for the normals; it's a bit much but it was the easiest way to do it (5 values for x and 5 for y). As for the results; I'm not really sure what to think about it. It doesn't look quie as bad as I had feared but somehow it feels more like a super pixelated 3d render than a 2d sprite, though maybe it would look a bit better if I made some tiles as well and rendered in his native resolution rather than having him walking around in a 3d world.