The latest CVS snapshot has support for split logical and physical palettes,
contributed by Mattias. This allows palette cycling tricks while performing
fast blits, and I used it to implement gamma correction in 8-bpp modes.
The code is available at:
http://www.libsdl.org/cvs.html
Included is a new test program for the palette code: testpalette
Please let us know if there are any bugs in this new code. 
See ya!
-Sam Lantinga, Lead Programmer, Loki Entertainment Software