After my experience with word shifts, I decided to go back to byte shifts. The idea was to translate that effort and move on. Unfortunately, I noticed that GCC wants to do shifts as word quantities. I'm not sure why that is, but unfortunately, something like "(char)v>>=4" turns into:
sra r1, 8 * Convert from byte to word value
sra r1, 4 * Shift right the indicated amount
swpb r1 * Convert back to byte value

Ick. Using the existing shift-and-cast peephole optimizations I can reduce this to:
sra r1, 8 * Convert from byte to word value
sla r1, 4 * Shift right 4, shift left 8 to convert

Better, but not by much. I can add a peephole to change this sequence to a single shift, but I'll be back to this problem if the code is "(char)v = (v+1)>>4". The intervening add will defeat the peephole, bringing back the unnecessary byte-to-word and word-to-byte instructions.

From what I've seen so far, it looks like these promotions are expected behavior, and changing that would require getting into the guts of GCC again. I think I'll pass for now.