For that past while I've been poking through the files of obscure mech shooter Iron Assault.
Images are stored in a file with the extension .lz. Its not really a set format, since there are differences between certain .lz files. Some I assume contain multiple images.
Generally the files have a 4 byte header which denotes the image size, a 768 byte palette (there may be more to this section than just a palette), and then image data until the file ends (bytes as reference to the palette, stored in columns). However some files are missing the size data and the palette.
I've had some success loading background images:

(its darker than it appears in game, but I think this is just an artifact of the way I'm loading the palette)
However, when it comes to anything else it appears that the image data has been compressed. And its not something simple like RLE.
I've tried running the data naively through a lot of different compression programs with no success. Based on the age of the game, and the extension .lz I'm assuming its some form of Lempel-Ziv compression. But that's a total asspull and I have no way of knowing that for sure.
I've gone as far as to look at the games memory while running, and I can find the place where the images are apparently being decoded but this is where I run up against the limits of my knowledge.
So:
1. Does anyone have any insight into how an obscure early-mid nineties Italian dev team would have gone about compressing their image data?
failing that:
2. Does anyone have experience with reverse engineering a decompression process?
I'm all out of ideas.