The turd in question here is this one, and since I'm banned from SilkWizard's blog, I may as well take up this topic here proper.
However, this isn't about how stupid someone is or isn't. Whats the right thing to be doing, with assets in BYOND?
What sort of file formats should I be using?
For sound: OGG, MIDI, MP3 or properly compressed WAV files depending on the sound in question. Obviously, only compress to the point where there is no audible difference - If you start to experience sound quality loss, then step back up in file size until you don't. Many games use MP3 for longer sounds and compressed WAV for shorter sounds. Bad sound is very noticable, so if theres something you don't want to compress its most likely here.
For graphics: This will vary quite a bit if we're talking outside of BYOND, but in the case of BYOND you should be using PNG's and potentially JPEG files. Obviously, again, only compress to the point where there is no visible difference. This will depend largely on your artistic vision for the game - Palette reduction is better done as an initial choice before assets are drawn, rather than compression.
Is there lossless compression for PNGs?
Short answer: Yes. PNGOut.
Here is a tutorial for PNGOut. The command-line version is free, most of the default options for various values are completely fine.
Short list of the above
1) Compress your PNGs with a lossless compression tool, if possible.
2) Use proper formats for the job at hand (PNG, MP3, OGG, MIDI, compressed WAV)
3) Don't compress or reduce something if it looks worse or sounds worse. Ever.
Now, looking at the Games folder on this computer, here are a few figures:
Barkley Shut Up and Jam Gaiden:
Sound assets: 48.11MB (3MB of Voices, rest MP3s and a few compressed WAV's for sound effects)
Graphical assets: 5.63MB
A note on the graphical assets: Those are only backdrops / backgrounds / tile screens. The characters don't seem to be there, so I'm going to assume they're somewhere I haven't found them or bundled inside the game or something else.
Depths of Peril
Total assets size: 88.1MB
Depths of Peril bundles its assets into zipfiles, and I'm not much into looking inside them all and figuring out how much is sound and how much is graphics.
Total assets size: About 90MB
These are all games that have comparable graphics/sound to what BYOND is intended, and all 3 of these games could reliably be re-created in BYOND, with the exception of Galaxy Online, at least if it is to support thousands of simultaneous players as it does.
If you're not developing a game for web play, you don't need to go crazy optimizing a darn thing. People are downloading games regularly that take up in excess of 500-1000MB for smaller games - If your game is 3MB compressed and 6MB uncompressed and the difference in sound/visual quality is noticable, then you shouldn't be compressing at all. You're in such a low ballpark that it doesn't matter. Compress and optimize because its a good habbit to be doing, but not to the point where it has an effect on your intended game vision.
So, taking a look at SilkWizard's 2MB hardcap I really can't do anything except boggle at why you would set such a ridiculously low cap. I agree with Foomer's assessment that doing so only encourages worse-looking, worse-sounding games. If you have other techniques or ideas on how to reduce game size without resorting to reducing the quality of your game, then go ahead and mention them and I'll edit them in. If I'm incorrect somewhere, please point it out =)