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Hey Sue...

I would think YES, the banding should go away even if you've saved an image out of PS, and reopened it after making the bit depth change. The problem stems from the graphics card and monitor, not Photoshop. So it should fix even pre-saved images. Banding happens from a lack of colours in the system display palette -- just like your images in Photoshop will look posterized if you use a really small colour palette.

The "old school" way of fixing this kind of thing was to simply apply the Noise filter at a 3-6 setting. This was essentially like "Dithering" your image on purpose. That would usually fix the banding... but not in server cases.

And dispite what you may think... blurring has no effect on improving banding -- it just shifts the bands around a little. And in fact, blurring might make it worse because it's creating even more colours that your monitor/vCard are not setup to display. Changing your Display to 32bit is like giving your comp a much larger colour palette to work with -- and is what fixes the banding.