Uttar, there's still no evidence that forcing FP16 could be the cause of the lack of dynamic range in the output. If forcing a lower-precision color calculation is the case, then it's forcing FX12.
As a side note, do we even know whether PS 2.0 or PS 1.4 are being used in the particular shaders that are causing the apparent problems? It could just be that FX12 is being used in a part of each PS 1.4 shader.
"Physics is like sex. Sure, it may give some practical results, but that's not why we do it." - Richard P. Feynman