monochrome (1-bit black-and-white) image conversion
I would suggest for this case that you upsample and apply a slight blur and then a sharpen, then apply the threshold operation.  You won't get any more information from the pixel data, it's simply not there. But you'll get a smoother result out of the thresholding operation, and you won't need to dither. The end result is like a photocopier degradation.

Example: 



Also, this is what it looks like when you just use a better diffusion dither algorithm ;)