Is there a way to avoid the horrid alpha dithering? And how do you make a gradient you can change the colors dynamically on?

I'm trying to create some nice gradients that change colors based on the user's settings but I end up with dithered graphics no matter what I do.

Currently I'm doing it with setPalette() on some indexed 8bit PNG images that I'm stacking on top of each other but their transparent areas get dithered. I also tried drawing the linear gradient line by line to an offscreen buffer and displaying that as a bitmap - it works but I would also like to add some shadowing on the edges. This is where everything fails again as apparently the semi transparent areas of PNGs are dithered also.

So - anyone know of a tutorial or sample code on how to create dynamic gradients? Or tutorials how to use the blend modes? Currently I'm only targeting OLED screens.