have you tried?
Graphics3D 640,480,16
You can reduce the colors in the textures all you want...but even if you make your textures 8-bit color JPGs...when loading them in Blitz will automaticly convert them to 16 or 32-bit color depending on the color depth that was set with the last Graphics3D call...
another thing to try is to reduce the texture size...make those 1024 X 1024 textures into 256 X 256 ones, then load them in...also might want to consider turning off MIP-mapping for some textures...
Just as an example...lets say you have a 1024 X 1024 32-bit texture....that is 4MB on it's own...now you load that in as 32-bit color with mip-mapping enabled...blitz ends up constructing a 512 X 512, a 256 X 256, and a 128 X 128 versions of your texture for use with mip-mapping...so all combined that one texture would need about 5.4MB of video memory to store that one 32-bit texture....in 16-bit mode it's about half that.
Another thing to consider is the screen resolution...the higher it is the more memory is required...remember you arn't just setting the screen resolution with graphics3D, you are setting two buffers and a Z-buffer...effectively useing 3 times the amount of memory.
for example:
Graphics3D 640, 480, 16
the front buffer will need: 614400 bytes (exactly 600kb)
the backbuffer will need: 614400 bytes
the Z-buffer will need: 614400 bytes
combined total: approx 1.8MB
Graphics3D 1024, 768, 32
the front buffer will need: 3145728 bytes (exactly 3MB!)
the backbuffer will need: 3145728 bytes
the Z-buffer will need: 3145728 bytes
combined total: approx 9MB...or about 1/10th of the 85MB your game is useing.