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I reduced the color palette to 32 colors, and the historgram shows the same 32 spikes, but no background noise (flat baseline). Then I reduced it to 16 colors and it had 16 spikes as expected, so the histogram appears to be working and that color palette from the screen capture is just weird. Worse, even though there are only 32 used colors, the new palete after reducing to 32 has 256 shades of gray, not those 16 different colors in that 256 palette attached above.
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