Dithering only yields good results on pixelart specifically made with it, or very large images with relatively low amount of detail. It doesn't work well on medium-sized images with lots of detail in them, and so full color PNGs were a much better choice.
And, you know, I doubt that "JPG would never catch on" is a true statement. While JPG as we have it now wouldn't have, 8-bit-color-jpg-equivalent would have, because it would still take significantly less space than a raw bitmap. And then we would still suffer from lossy compression, just a different type