Oh damn, you really knocked it out of the park with that second edit. That's insanely good. Really like what you did with the face and legs. I'm gonna put some more work into this piece with your edits in mind.

I don't think you should sacrifice contrast just for dithering's sake, if you wanted to sneak in subtle dithering or texture you could always add a few colors that aren't as harsh. the dithering doesn't read as a scaly texture to me, maybe small clusters would be more effective?

also i think the back leg could recede into space a bit more. that tail looks great btw.

 Thanks for the advice. The higher contrast definitely brings it much more strongly into the third dimension, but the dithering looks even worse at high contrast. My plan was to sneak in a little low contrast dithering to give a bit of a scaly texture.

 updated it a bit, with darker colors on the dark end of the palette, and a little less dithering. I'd love to hear your opinion.

needs more contrast imo. looks good but I'd prefer it without the dithering.