Actually, you can use PNGs. In fact, you can rename them to anything including *.txt or even *.docx as long as you configure the .exe to use them, such as the Game Settings in Cave Editor!
Ok here let me rephrase this.
You can use files with the extension .PNG, but if you use an actual png file
the game will not read it.
The only reason .pbm files work is because the .pbms Cave Story uses are just renamed .bmps. That is, they have the same file format as a bitmap (not the same
file extension, but the same
file format). So if you saved your bitmap and then renamed it to .txt (and set cave story to look for the extension .txt), it would read the file, as long as it was a bitmap.
A PNG is NOT a bitmap. It is an entirely different format that is compressed (but still lossless). If you try to get Cave Story to read .pngs for its image files, it will try to read it as a bitmap and then it will probably crash or throw an error since it's not a bitmap. If you saved a bitmap and then ONLY changed the file extension for that file to .png, it would work, but the file extension would just be lying since it's still a bitmap.
So no, you are wrong, very very wrong. You can't use .pngs for Cave Story's sprites (and god help you if you try to save a .docx file in Word and feed that to Cave Story). Just because you change the file extension that Cave Story looks for doesn't mean it's not going to try to load the files as a bitmap.