In pak128, the transition between night and day is pretty straightforward, it seems that only the brightness of the color is reduced. Is there a way to tweak this, to make it more life-like, like an orange sunset/sunrise?
It's not specific to pak128, this is a code-related issue. No way I can change this a pakset maintainer, you should make an extension request about it.
In principle yes. In practice you will run quickly in ugly color, sicne you only have 5 bits to work with. But it is very easi\y, you find the routined in simgraph16.cc. I have no compiler right now, but the routines are quite in the first quarter of the file. Look for "nightshift".