[ function pixelate(bitmap:Bitmap,pixelWidth:Number,pixelHeight:Number):BitmapData {
	var pixelScaleX:Number=1/pixelWidth;//find scale
	var pixelScaleY:Number=1/pixelHeight;
	// shrink bitmap
	var smallBitmapData:BitmapData=new BitmapData(pixelScaleX*bitmap.width,pixelScaleY*bitmap.height,true,0x00000000);//create small bitmap
	var smallMatrix:Matrix=new Matrix();
	smallMatrix.scale(pixelScaleX,pixelScaleY);//physically scales the bitmap
	smallBitmapData.draw(bitmap,smallMatrix,new ColorTransform(),"normal",new Rectangle(0,0,bitmap.width,bitmap.height),false);// get original bitmap at smaller size using the smallMatrix
	// enlarge bitmap
	var newBitmapData:BitmapData=new BitmapData(bitmap.width,bitmap.height,true,0x00000000);//create normal sized bitmap
	var newMatrix:Matrix=new Matrix();
	newMatrix.scale(bitmap.width/smallBitmapData.width,bitmap.height/smallBitmapData.height);
	newBitmapData.draw(smallBitmapData,newMatrix,new ColorTransform(),"normal",new Rectangle(0,0,bitmap.width,bitmap.height),false);
	// return the new bitmap
	return newBitmapData;
} ] 

Oops, my bad – this data copied to the clipboard wasn’t being updated when you select a new amount for the colours.

The demo is updated now and will give you your desired amount of colours. Clear your cache and you’re good to go!

src: http://code.google.com/p/sekati/source/browse/trunk/src/sekati/utils/ColorUtil.as

doc: http://docs.sekati.com/sekati/sekati/utils/ColorUtil.html