I was thinking of switching the palettes around to match the mood of the game as it goes along. I.e. Using "Harsh" when angry/hostile, "Original" when Neutral, "Grey" when sad. Is this not allowed?
Palette switching is allowed as long as its not actually part of the gameplay as the phone would've been incapable of doing so. If its a setting that a player can choose between that is okay. In your case that wouldn't be allowed.