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Hear, hear. I agree!
Just to follow up... Even if I put OS X itself into 256 color mode and ~then~ start up Parallels, Windows still only displays 16-bit and 24-bit...
Parallels 2.1b3 is working quite well for me thus far -- everything is perfect, 'cept one tiny thing: I can't switch Windows XP to 256 color mode....
OK, I lied -- After a rebooted my Macbook I now have sound, although it's choppy at the beginning (as you said it might be ;)
I'm having this same problem on my Macbook Pro. I added the sound device in my VM configuration, and when Windows XP boots it lists "Intel(r)...
