I played around a bit with WinUAE (AGA modes) and the gradients image alexh linked to earlier.
Cutting out the 0-255 color diagonal gradients and viewing them with PPaint, there is a loss of color (255 color gradients aren't perfectly smooth), however they look better than I expected, and the color loss in this case could be down to PPaint image handling/conversion process. The 256 color red sphere looks amazing since the banding is less perceptible.
While viewing the same image, switching WinUAE video mode down from 32-bit to 16-bit setting produced a horrific color loss, easily seen.
There was obvious banding viewing the reverse-aligned and RGB cube images, but this was to be expected since they use more than 256 simultaneous colors.
I played around with the HAM viewer, and as I recalled, gradients looked rather poor IMO. Yes, they can be somewhat smooth, but the weird HAM effects (looks like over-saturated colors and blurring) are obvious.
These are my observations after a quick test, and I realize there are too many variables involved to make any "definitive" statements (plus I'd really like to attempt some better testing using a "real" AGA machine).
My error lied in how I was viewing the "16" and "24" bit terminology in relation to Amiga video display, vs how alexh and others (admittedly more technical) usage. Normally, a distinction isn't made when referring to internal palette vs amount of displayable colors, since they are almost always the same. AGA is a bit unusual in this regard, having an 24-bit color palette, yet usually only capable of what would normally be termed an 8-bit (256 simulaneous colors) output (though from a 24-bit palette). I think this is why there is so much conflicting information abound on the subject. For example, HAM8 drivers for Shapeshifter are referred to by their authors as being 15-bit, simply in reference to the potential of displayable colors, not in reference to the internal palette. So the disparity here is really down to terminology. (And I still think it's a little unfair to say AGA is a 24-bit output without first clarifying things.)
Anyhow -- I'm not sure the DCE internal unit is 16-bit, at least not in the same sense as viewing, say, a 256 color blue gradient in WinUAE/AGA, and then switching to 16-bit. I used to do quite a bit of photo-related things using both HAM and 256 color screenmodes, and probably would have noticed such a terrible color-loss. Alexh and and I both agree that the GPS chip on that unit is certainly 24-bit, and if the output has been reduced it's not discernable from looking at the hardware specs.
Any SD that is 16-bit I would certainly avoid for AGA, though.