*pillow shading, heads away with it. No need to get so defensive; comments are just other peoples ideas and opinions, take from them what you will, critique is intended to help :)
There is no banding in the mentioned areas, and I think that there are no grave readability issues despite the limited palette and the torso/stomach has the same light source as the rest of the body, wich apparently was not conveyed distinctly.
There is a lot of banding on the wings/arms/horns that take from the shape and readability, the torso/stomach has a more defined light source, you could base the shading of the arms/wings/tail etc off that
it sure does
Well now you managed to completely confuse me, how am I being defensive abour your comment(I actually appreciate critisism, even more than sheer praise)? All I did was reply by discussing all the points you mentioned as polite as possible, the pillowy appearance results from the position of the light source and the point of view and also from my lazy choice on how to handle the transition of the sprite to the bg, altering any of these might help resolve this, but I dont consider it severe enough to attempt on changing it.