Hey. I'm running on 32/24 bit colour and it's running fine (else the screenshots of anime and azubeach i have would look really horrible). Sounds a bit funny that only 8 bit colour works..??
Ah only some games support windowed directx modes.. just happens that the one i tried did.. You can usually change the settings in directx games though to make them do that.. for OpenGL stuff, tell it not to change the desktop resolution and it'll just render at whatever the desktop res is.