Snow?
Disguise made an article on this right here.
Those pink colors on the bottom, are they necesarry? Can I put some other colors instead of them?
It worked excellent for me, so you can.
What is the best free program for making textures?
TM32
Where can I get Palette Suite? (my PSP trial ended)
Here.
Do I have to use all 32 colors of texture? Can't the texture have smaller amount of colors?
You can't, you must use all 32 colors, and you cannot use #000000 (Pure Black) and #FFFFFF (Pure white).