Converting Bit-depth of Textures

[frog]

I am making a model of a fiddle to import into the original Half-Life, that I might beat zombies with it. The modelling, the compiling, the coding, all of that I have covered.
But there is a certain limitation with Half-Life: 256 colors (8bit) textures only. So converting the images I took with a digital camera to 8bit BMPs amounts to gross distortion of the image.

My level of skill and knowledge about graphical matters is quite low. What I am wondering is, what can be done to prevent the image from getting so distorted during conversion? I understand that color loss has to happen, but the colors showing up are just plain wrong. What programs/tools are available for correcting this sort of damage?

[rbcp]

One thing you could do is remove that multicolored background.  That takes up a lot of extra colors that you really don't need.  Make the entire background white (or some other solid color) and then convert it.  Also, with Paint Shop Pro, when you reduce an image to 256 colors, you get all kinds of crazy options for it.  Such as "nearest color" and "error diffusion" and "reduce color bleeding" etc.  Play with all those settings until you figure out what looks best.