I was wondering iv you could get it to use color instead of B&W.
I haven't played with it, but I followed the original thread about it - basically the answer is "no" simply because the Arduino doesn't have enough memory. Your frame buffer would have to be able to store not just black and white, but an RGB value (because you aren't using an external palette lookup table). However, if you did build an external hardware palette lookup table, then it might be possible to gain colors.
But there's another issue: timing and speed; your timing and everything for NTSC/PAL color has to be even more precise than black and white. It is certain possible to do color with an ATMega (as has been demonstrated here - albeit VGA):
http://www.linusakesson.net/scene/craft/index.php
...but the timing is really tight; I mean, you almost -have- to be a demoscene coder to pull that kind of stuff off with a microcontroller, at least if you want it to do anything more complex than show a static image. One minor timing glitch and you either get a black and white picture or nothing, most likely.
Something you might try, though, with the TV-Out library is to investigate using artifact coloring (easier with NTSC than PAL) - you used to be able to do this with CGA (where its explained a bit):
http://en.wikipedia.org/wiki/Color_Graphics_Adapter
Essentially, when you place two white lines close together on an NTSC frame, because of bandwidth bleedover and such (I don't understand it fully), you get a different color visble. I am most familiar with the TRS-80 Color Computer, which used this mode quite a lot for game and graphics. It had a 256x192 pixel mode (Color Computer 2) that could do artifact colors, to give you an effective resolution of 128x192, with four colors (black, white, red and blue - although properly, the colors were closer to black, buff, magenta, cyan).
In 2009, a mode was found on the Color Computer 3, whereby setting the palette of the 640x192 4-color screen to black, white, and the two grays that were supported on that machine, you could obtain a virtual 160x192 "256 color" screen:
http://www.atariage.com/forums/blog/105/entry-6693-color-computer-3-artifact-art/
This actually caused a pretty big splash, though it has yet to be exploited by anybody for a game or otherwise (the images in that thread above are all still images). What amazes me most about this mode was the history of it - it was essentially discovered back when the Color Computer 3 was being sold in the mid-1980s, but never made the "splash" it should have because the guy who first published about it, published in a small CoCo magazine, instead of the larger Rainbow magazine of the day, which was the largest national magazine regarding the Color Computer. Thus it faded into obscurity, only to be re-discovered close to 20 years later.
Another possibility to try might be to use what the UzeBox:
http://belogic.com/uzebox/
...uses for its color capability - the AD725 RGB to NTSC/PAL encoder:
http://www.analog.com/en/digital-to-analog-converters/video-encoders/ad725/products/product.html
However, you still run into the memory issue of storing a multiple color image in RAM, without a hardware palette lookup table (with such a table, it becomes more in the realm of possibility - basically, its a hardware device that encodes a of some size 2, 4, 8 bits - into an RGB triplet).
Now - the UzeBox is based on the 644 (essentially the Sanguino), but uses a different library than the Arduino - but in theory could be coded for using the Arduino libraries and some hacking...
