Also, due to Dioxine's awesome coaching, I have figured out how to dither my backgrounds and not my medals, and combine the two to make a much nicer image.
Image on the left is with dithering everything at the "Save for Web and Devices" step, and the image on the right is with a pre-dithered background image and the medallion and Ribbon saved without dither.
The key to this is to convert (As Dioxine said) to index prior to "save for web and devices." This will flatten everything, so you need to carry out, just your ribbon and medallion and no background, or maybe a transparent color like pink?
Once indexed, to bring the back ground back in, the image(s) need(s) to be reconverted to RGB. Select pixels, copy medal, paste into background, and voila!
Cheers! and thanks for helping me figure this stuff out!