[toast0]

If you're going to crochet the result, I don't think you really want 256 colors. A 16 color pallete is probably acheivable if annoying.

Seems like if you print the image, then print a grid on a transparency sheet, you could mark up the sheet with colors until it looks good.

Maybe tracing paper (can you print a grid on tracing paper? Do you want to hand mark a grid on tracing paper?)

I don't use art tools, but you should be able to do something in software too, layer the grid on top, leave it transparent to the image until you pick a color for each square.