In practise you would use at least a 16-bit color image, which would prevent stair stepping, unless it is part of the original 35mm frame.
Pardon my ignorance, but what do you mean when you say “stair stepping”?
When you perform a color correction at a low color depth, the colors from one pixel to the next may resemble a step function, rather than a smooth transition.
Right, got you.
Can’t you have your time line set to a higher depth so that there is head space for the addition of the colour space?
I don’t think that would work in this case: If you take a frame from the blu-ray for example, which is 8-bit color, and you bring that into your After Effects timeline and set the color depth to 16 bit, it won’t magically double the number of colors in the image you imported.
The way I interpreted Dre’s comments was that the images he was working with were 8-bit color, and this is why the example images are not so good as they might be if he had 16-bit versions of the same images to play with.