a small step...

not yet implemented the colors per pixel block limitation, but quickly hacked in a low-res Flexible Line Interrupt (FLI) version. this one allows basically the full 16 color C64 palette on 160x200 pixels. these are widened then to 320x200 to keep the ratio.
here the (blocky) results...
fake 320x200x16:


more realistic widened 160x200x16 FLI: