My last note doesn't do alpha properly, so make the following change to the appropriate lines:
$r = ($word & 0x7C00) >> 7;
$g = ($word & 0x03E0) >> 2;
$b = ($word & 0x001F) << 3;
$a = ($word & 0x8000) ? 127 : 0;
$color = imagecolorallocatealpha($image, $r, $g, $b, $a);
imagesetpixel($image, $x, $y, $color);