Yeah, that won't work. IIRC, you specifically need a PNG8 @ 256c (i.e., not paletted).
e.g., something like
Code:
-colorspace Gray -define png:color-type=0 -define png:bit-depth=8 -quality 75
And once you hit a broken image (which does result in "nothing" happening), you'll need to reboot the device (or the full UI framework) to get it to pick up new images properly (assuming nothing else in the pool is broken).