Are the Kindle 2's 16 shades of gray a big deal?

That depends. I once posted, in various forums, a page of illustrations that gave the image display capability with 16 shades of gray available to the Kindle 2 vs the 4 gray shades of the Kindle 1 (and the 8 shades of the Sony PRS700) in response to questions about how much difference this might make with e-readers.

The choice of 16 shades of gray (or grey) over 4 shades is an easy one for me, as the difference is large for someone with an avid photography focus and who likes to enjoy images (including maps) in books too).

The illustrations are from the excellent tutorial at the wonder of light
  It includes  (above each photo)  a description of gray shades used for that photo.

A grayscale image is made up of differences between white ('off') and black ('on'), with only black (1-bit, say) or white (0) a night & day thing, with nothing in between.

To add something in between, they can make it "2-bit" and this produces 4 shades of gray.  You'll recognize the image below from what we sometimes encounter with our Kindle Klassics (K1's), unless the publisher dithers* the image.

Kindle Klassic (K1) style (4 shades)
 

* (Some publishers can choose to 'dither' a limited 4-shade image by
    using diffusion to lessen the harsh transition from one shade to another
    to make the image more photo-like.
      However, this usually reduces sharpness and can cause a grainy pattern
    that's visible or, more often, a posterization effect.
      We see nicely-dithered images on the Kindle Klassic by publishers who are
    aware it can be done.)


Sony PRS-700 style (8 shades)
 


Kindle 2 style (16 shades)
 

For me, this is a REALLY desirable change, and it's the one reason I did want the Kindle 2, for books with illustrations).  I already have 2 Photoshop tutorials (in Kindle format) on my Kindle and a couple of travel guides with pictures.

  Here are examples of actual differences between photographic displays of the two Kindles side by side.

  With text, there are downsides as well as upsides, in that various colors used in a book of colored text will be translated into shades of gray, leading to less perceived contrast than if all the text were in complete black.

By the way, that page at the wonder of light is excellent.  As you browse it, remember that each photo is explained by the description ABOVE it.

 - Andrys

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