Photoshop CS5 just isn’t the tool for this task as you can see. The amount of detail in such a small area (Bitizens are about 14x17pixels) just seems impossible.
I’ve had him looking much better without the size reduction, but then I don’t get the “I’m gonna wreck-it it!” chat bubble, and it’s just not the same. So I’ll continue to work on perfecting him. I’m also working on some of the Bitizens, and the floors themselves amongst other things.