Okay, I have hit a dead streak. I'm definitely a noob when it comes to pixel art and cannot dither worth trash. I want to practice but everytime I start up a piece it always starts deteriorating and I give up.

So I thought; maybe I should be using references to start out just to practice?

Is this a good way of going about it or should I persist with being creative and doing original pictures/designs?

Always use references, regardless of your skill level or what you're depicting. When you have the opportunity to look at images of what you want to create, or not, why would you forgo something so helpful? You don't have to copy them necessarily, just allow them to inform whatever you're creating. So if you're creating a human head, look up human heads, skeletal anatomy, etc.

Forgoing references isn't 'being creative', it's being uninformed. And KM's right about dithering, it's an extremely common n00b mistake to dither everything to hell, dithering is something that should really only be used when absolutely necessary due to palette restrictions, or when you want a certain rough texture.