Seems like it's not running at the highest bit depth, or something funky with the emulator is causing the Finder to display low bit depth icons. On a real machine and on qemu-ppc on my machine OS 9 displays icons that are more shaded and detailed.
Impressive that it runs in a web browser, but it seems that it has some quirks.
You can change the color depth in the Control Strip in the bottom left corner. It's indeed set by default to "256 Colors", setting it to "Millions of Colors" (=24bit) removes the dithering from the icons.
Impressive that it runs in a web browser, but it seems that it has some quirks.