I am already saving images as PNG8, I think (8 bits per pixel, right?)... Would seems to be a problem in the Kindles handling of sub 8 bit depth images (just retried and the same thing happened, horrible quality on kindle fine on windows). Oh, I hope you don't mind me attaching the pngcrush.exe, didn't ask if I could
Updated OP with new version, found bug that prevented generation of bookkeeping files.
My bugfix had a bug in it. version 2 of 0.26 is in OP. Also added the last two versions in case there are more bugs in the latest.