Direct-X 7 can safely work with indexed colors, OpenGL also, and even on B3D it works.
Nope. Internally, they're converted.
Try comparing a PNG with 256 colors (or even 16!) to the same PNG saved with 16 millions colors (even if it uses only 4 or 5); the size difference is enough to support indexed colors use - of course, when there's no loss in quality.
I'm pretty sure indexed PNG's already load fine, hence my suggestion to batch convert. I stand by the "useless" generalization though because the difference in size you refer to only exists when your images are uncompressed. If the amount of hard drive space they use - or the download size of the game - was remotely important to you, you would compress them. With a decent compression algorithm, they're the same size.