A few years back I was in a project where we created all character movement using an atlas of 2D sprites rendered out in PNG format. I had an idea a while back to do this again but with pixel art being the art direction.
I think It’ll definitely work, however the model being rendered will need a lot of special attention, or rather, a very low detailed texture. Adding an AO pass (into a static diffuse) might just be enough! That would however increase the color amount, a steady 16 including the white background should be ok for something like this.