The answer can be found in the regular Fitaly Forum. I just used the search function and came up with
this post from Jean Ichbiah. It is dated from the time when the Palm IIIc, the first colour machine, was new - but AFAIK the reasons still are the same. Excerpt:
Unfortunately, the design of the color processor of the IIIc has removed the way that used to be the standard way to handle screen overlays on previous versions without providing an API to achieve the same effect.
Fitaly does ambitious screen manipulations and we have found no way to do it with the restrictive hardware design of the IIIc and nobody else has at this stage. It is unclear whether we will provide an upgrade to regular Fitaly on the IIIc unless someone finds a technique to overcome the hardware limitation.
Cheers,
- Juergen-