5 colors:
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The optimization could be better, creating the character set takes up the majority of the code.

Edit: it could also be simplified by reducing the character height to 8 pixels, that way the dither has a tile size of 4*8 instead of 4*9, or even 4*4 (the lower half of the character is the same as the upper) which is ideal for 16 levels.

Some optimizations allowed for saving 12 bytes, leaving enough space for synchronization to vertical blanking:
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Another modified version with 8 pixel character height, 40x28 screen, EXOS compatible reset routine, and some other minor changes:
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The effect can be changed with some minor edits, for example:
Perhaps instead of the reset routine, the saved space could be used for changing the parameters with the keyboard, or the plasma effect could be made more complex and interesting.