At present, player color mods still have an effect on old sprites in the old SMX format, e.g. sprites from events and old mods. The mod problem seems simply caused by the new SLD format being different, requiring another method to apply player colors, which has created new bugs and cut off mod support (perhaps by an oversight). For example, see player colors on collapsed buildings.
Hopefully they can replace the current solution of fixed color blind profiles (which apparently doesn’t fit every actual color blind user) + color mods with AoE3DE’s 100% customizable player colors, saving everyone the trouble.
The “palettes” mentioned in your quoted post are not the same thing as palettes of player colors. What that post is actually saying (long explanation below):
The earlier SMP/SMX sprite graphics use indexed colors. The raw images of these sprites would be in 24 or 32-bit colors, and far too large for our home PC’s hard drive or RAM to handle. Instead, each sprite file stores colors in 8-bit, “indexed” to its own 256-color palette that only contains the colors it needs.
In this day and age, that’s a rare and very “retro” approach, and behind the scenes, it actually takes heavy CPU operations to get it off the ground. Instead, most current commercial games use “lossy” algorithm-based texture compressions innately supported by modern graphics hardware, which is exactly what the August update has switched to. The new SLD format has generic 16-bit colors, compressed with standard algorithms (BC1, a.k.a. DXT1).
On principle, BC1 can make a texture slightly mushier or blockier than the source image - some small color details get lost, some smooth edges turn into blocky zigzag. Matthew Pritchard, lead programmer of original AoE1&2 who also decided on the Definitive Editions’ indexed colors approach, explicitly cited this loss as a reason behind his choice:
[StarCraft: Remastered] uses DXT compressed textures, which are great for 3d Cards but have a specific, less-accurate look, when compared to the original game’s 8-bit sprites.
AoE:DE and AoK:DE use much more complicated 8 and 10-bit Indexed sprites mixed with projected 3D layers, which gives a different ‘look’
However, as the AoE2DE art switch has proven, MattP had a major blindspot in his reasoning.
Traditional artworks of 256 (or lower) colors in games like original AoE1&2 look astonishing, because they have handcrafted palettes, where every color is carefully chosen to pull its expressive weight, and the artworks are themselves made to fit in their palette limits.
The original AoE2 palette, rich in earthy browns and vegetative greens.
Conversely, DE’s SMX palettes must be auto-generated, and whatever method they used did a poor job preserving their intended colors, usually making everything darker & drabber. This process achieved the opposite of its goal to look crisp, incurring far heavier color loss than any side effect of BC1.
That’s why the switch seems a pure gain so far (outside the bugs): load time & RAM usage are greatly reduced, and colors are visibly improved.