When it comes to graphics in Argentum, I am the one to consult (Carpe is the über gameplay programmer). I don't remember doing anything special.
My alpha routine is set to use 256 steps (size of a uchar), and I work with channelvalues ranging from 0 to 255 (uchar again). So basically I am calculating it as truecolor first, and then I throw the channels together into a 16 bit color using bitshifts. But I think that is the general way of doing it. Think very few people are actually working with the actual 32 steps per channel. We are all too much brainwashed with truecolor values.
Anyways...one thing that could be causing your flickering is that you are using the iPAQ 36xx which has a 12 bit screen. In Argentum all game source images are before put into the game dithered down from 32 bit (at which I create them) to 12 bit and then I save them as 256 color images (to save storage space). Generally this makes gradients look better than if it was a true color bitmap I displayed, since I dither the colors down to what the actual screen is using.
Now if this makes fading look better I don't know, but I wouldn't be surprised.