Yeah, I think that the first shading colour is a bit close to the second, so AA is looking a bit bandy. Parts of the highlights where lightest colour meets midtone would make them look a bit more like highlights, rather than an even outline of buffer colour. Maybe a bit of a highlight on the (our) left boob too :P
I do love that preview ^_^
EDIT: Here's a quickie edit, trying to show what I meant about huighlights is that was unclear. One other thing, (our) left arm should have a highlight or two, lightsource direction is a bit muddled as you have highlights on the right side but that arm is in shadow.
I think you used a tad bit much of banding (if this is the right word) instead of antialiasing. Also, I can't really tell where the light is coming from since HIS left arm is all darkened and his pants are kind of bright.
In order to prevent/fix this you should make a yellow dot where the light focus is and then proceed to highlight and darken slowly. That works for me.
I think it would get so much better if you used brighter brights and darker darks (i.e. more contrast!) and you made more parts of his body shinier, as he is a squid and squids are slimy and watery and water reflects light a lot.
Also if you're lost on what banding or antialias is, please refer to the forums or search some tutorials (There are hundreds) on how to do AA right.
I liked it, though. The sprite itself is cool!
Cool character, but I do agree with Karv.