By default, for backwards compatibility with earlier versions of GD, images are created as 8-bit palletised. To get 24-bit color (truecolor), you need to indicate that you want this when you create the image, or afterwards using the $img->truecolor( 1 ); method.

Change your image creation line to

my $outpizzle = GD::Image->new( $width, $height, 1 );
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and observe the difference it makes to your output.

Also, faking #use strict; serves no purpose whatsoever :) It took all of 10 seconds to do it properly.

#!/usr/bin/perl
use strict;
use GD;

my $width = 800;
my $height = 600;

my $outpizzle = new GD::Image( $width, $height, 1 );
#$outpizzle->interlaced('true');

#define a $%!@ ton of colors ... bad idea?

my @colors;
for ( my $i=0; $i<10; $i++) {
    for ( my $j=0; $j<10; $j++) {
        for ( my $k=0; $k<10; $k++) {
            $colors[$i][$j][$k] = $outpizzle->colorAllocate($i*25,$j*2
+5,$k*25);
        }
    }
}

#draw some shizzle
for ( my $i=0; $i<$width; $i++) {
    for ( my $j=0; $j<$height; $j++) {
        $outpizzle->setPixel($i,$j,$colors[int(10*($i/$width))][int(10
+*($j/$height))][0]);
        #print int(10*($i/$width))+"\n";
    }
}

#output the picture
open(PICTURE, ">picture.png") or die("uh oh spaghettio");
binmode PICTURE;
print PICTURE $outpizzle->png;
close PICTURE;

## display result on win32 systems
system 'picture.png';
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There are lots of other things that could be 'improved', but it's your code.