It can't simply because its too large.
In some areas the pixels aren't even in right proportions
Your "pixels" are about 9x9 pixels large or 8x9 pixel large which is why I couldn't make a
proper version.
Like so
Attachment 30473
The image to the right is what the hat's size
should should be.
http://i.imgur.com/5ApC7Ai.png
Now graphics cc.
I think you use far too many shades.
3 should be enough.
I also suggest that you dont use black for insides.