As always, great little game, everything fits together, the artstyle, sounds, gameplay!
And I think the dithering is a great little detail. Did you make that with updating tileset?
Yeah, that's how it works! I just lazily looped over all tiles in the level and calculated the distance to the player.. Then just add regular shadows with a Light2D and you're done!
Anyway, thanks a lot for playing and the kind words! :-)