You're gonna make me lazy man.

Thanks.

Y'know what. Try as I frickin' might, I cannot get this indexing sh!t down! It's horribly frustrating, especially since I've already been contracted to make sprites (god forbid).

In other words...

HALP

Hold on, lets just make sure you're doing the steps in the right order.

Open palette.bmp with MSPaint (vista version or lower)
Do the same, in a new window, with your unindexed sprite
Copy the contents of your unindexed sprite to the clipboard, and then close that window.
Paste the sprite into the opened palette.bmp
Save the edited "palette.bmp" as your sprite (overwrite it)

It's pretty simple, and I can't imagine what would be causing errors other than missing a step or doing it backwards or using incompatible software.

After following your instructions to the T, I can finally index a sprite properly. No more negative colors or a huge negative sprite of the pallete. Thank you, good sir!

Apologies, coherency is not something I am renowned for.

All good. There are better ways of doing it of course, with photoshop and GIMP that let you have autodithering and all sorts of goodies, but for the simplicity of getting a sprite out there you can't beat literal cut and paste
I've found that if you want to quickly edit a sprite learning MSPaint's quirks and living with them is better than than using something more complex that you have to learn more tricks. Then again, there are some boss pixeling packages about nowadays, and layers are very nice
It's all personal choice I suppose.