What the...

I'm extremely new to Photoshop Elements 5.0 (as in I just started using it this week) and I'm having trouble. Being the animated icon fan that I am, I did manage to figure out how to animate stuff without difficultly. The only problem I'm having is the size. The icon I am currently working on has 21 layers and at 256 colors, it is 54.04 in size. I want to use it on Livejournal so I reduced the colors in order to make it smaller and had to go all the way down to 20 colors before it was below 40K. Of course this makes the icon look terribly grainy and just awful. I've already deleted layers from this icon and if I do anymore, the icon will be worthless. :(

Any suggestions?