Also it was kinda weird to see actual TV image with 8-bits overlays. I wonder if they used a transparent color for the 8-bits overlay then slapped it on top of each TV image? Nonetheless it looked cool.
It must have worked kind of like the Sega Genesis with two background overlays, with color 0 used as a transparent color for the foreground overlay.
An MSX2 could do the same if you look at the Astron Belt port, with FMV stuff with sprites on top of it.
So this was very possible back then.