Too many colors, part 2

Evidence suggests that the Data Select screen originally had a similar palette layout to the one in the Competition level select screen: the first palette line holds the colors for the background and menu elements and the fourth line is used to display the current save slot's preview picture. However, the third palette line contains colors used to display the Chaos Emeralds, rather than Knuckles' palette.

As a result, Sonic and Knuckles are forced to share the second palette line; the developers accomplished this by taking Sonic's palette and replacing three of its colors with Knuckles' three reds. Sonic's palette already has two shades of red which are a close enough match. The third red is squeezed in by sacrificing the lightest gray.

This gives us the final palette layout as follows. Interestingly, the emeralds are made to flicker by writing white to every color in the third palette line every third frame, suggesting the feature was a late addition:

Obviously, this setup requires that all the character sprites be touched up; generally speaking, the light gray is replaced by white, and Sonic's shoes get a bit of pink so they don't look as dark. However, they missed one small detail:

With the new palette, the light gray of Eggman's bald shine became a red dot on his forehead. I guess the man's taken.