It fails for me with GFX2GF 1.5 and 1.6, and with old and new versions of FFMPEG. Something about it just freaks out FFMPEG. I brought the animation into FastStone Image Viewer, exported the frames, and recreated the animated GIF. Attached. Seems to work now.
I still think the graphic you made ground-up for 16×16 looks better. In this case, nearest neighbor is really best for shrinking pixel art that once was 16×16 and then increased.