@jackie_w: Yep, throwing image 2 without processing at an eInk controller renders more or less like what image 3 looks like (albeit probably not as awful as that one, I chose something with gradients on purpose

).
As for the differences between 2 & 4 on an LCD, I'd recommend checking them at their original size, scaling algorithms have a tendency to smooth or exacerbate dithering patterns

. [Some cheap LCD screens also have crappy internal dithering, which may not help, although that usually affects video more than fixed images].
On the other hand, throwing image 4 at an eInk controller should render much more like what image 2 looks like on an LCD than image 3

.
EDIT: See for yourself, attached the same thing formatted for the Aura H2O, feed it to pickel showpic. (And reset the rotation afterwards to unbreak nickel)
Code:
cat cover_dahlia_16c_dithered.raw | /usr/local/Kobo/pickel showpic
echo 3 > /sys/class/graphics/fb0/rotate
FWIW, because that's unusual enough to be annoying to find:
Code:
avconv -i cover_dahlia_16c_dithered.png -f rawvideo -pix_fmt rgb565 -s 1440x1080 cover_dahlia_16c_dithered.raw
Input PNG has to be 8-bit, even at 16c, or ffmpeg/libav chokes on it (ie. Image > Mode > Grayscale in GIMP), and it needs to be in landscape mode (90° counter-clockwise rotation)
EDIT²: And the requisite terrible cell-phone pictures

.
EDIT³: That example also seems to unearth a gamma issue when the controller is fed a full-color image... ;o).
EDIT⁴: As usual, if you go the extra mile, and use IM all the way, with the specific eInk color palette, it's even slightly better

.
Code:
convert cover.jpg -rotate -90 -colorspace Lab -filter LanczosSharp -distort Resize 1440x1080 -background black -gravity center -extent 1440x1080 -colorspace Gray -limit time 60 -dither FloydSteinberg -remap ~SVN/Configs/trunk/Kindle/Touch_Hacks/ScreenSavers/src/linkss/etc/kindle_colors.gif -define png:bit-depth=8 -quality 75 cover_h2o.png