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. In the "Display Properties" settings tab, the only options are "Medium (16 bit)" and "High (24 bit)". I know it sounds goofy, but I really need 256 color mode for certain apps -- what to do? Thanks!
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 as my options.
As another data point - under Windows 2000 I get 256, 16bit and 24bit as my choices. I have the opposite problem as you - I have an app that needs 32 bit to run.
WinXP has limitations of videomodes. As it uses pretty-graphical-interface it needs to have at least 65535 (16bit) or higher colors. So, on real computer (i tried now) you also can't swicth to 256 color mode.
I have a VM built under windows 2000, it does indeed support and switch to 256 color mode. I tested it with an old windows game that would only run in that mode.
If you right click on your program, select Properties, and go to the Compatibility tab - you can set it to run in 256 color mode. Since this seems to be an old program, you might examine the OS setting too above it.