grannyGrumpy, I just took a look at your test EPUB in your first post... Perhaps it might be best if you stick a few different types (4 gray, 16 gray, 256 gray) of the same exact image in the EPUB. This would make it easier to A/B/C compare on a device.
I specifically remember running into a serious "banding" problem on my Nook with some high resolution formulas which I reduced to 4-color grayscale (I assume 2-bit PNG?)
I will have to hunt down that EPUB and get a lot more details.
(Hopefully) tomorrow, I can get post more thorough testing/posting of my grayscale PNG samples.