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After having payed around with some fonts, in my opinion, the original Palm font in its hires incarnation is the best compromise between legibility/readability and efficiency.
What it lacks is character - which, also in my opinion, is hard to portray in a few pixels and most likely a flexibility feature.
Four free fonts that work very well even at small font sizes on the TT were created by Microsoft exactly for low res displays: Verdana, Georgia, Trebuchet and Tahoma. These have custom-tweaks for low resolutions. Creating them for the Palm via iSiloX is easy, so give it a try. They are not really exciting, but they work.
When sub-pixel rendering is introduced in iSilo (something that Darren told me he would investigate), there might be more potential for expression that does not destroy legibility.
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