XP service pack 2 problem with Display settings

I'm re-installing XP onto my father's computer and something odd happened that I've never seen.

After installing service pack 2, windows changed it's color settings to 4bit, and it's display s locked at 800x600.

I went to display settings, but it won't let me change them. Further, I know it's service pack 2 because I did a system restore (twice) with the only change being the install of SP2 and it's all 4bit color.

To add to the odd, it only goes 4bit from the login screen and on. while Windows in loading the windows icon and the little progress sliding bar graphic are in 32bit color.

Is this a driver error? I'm running the monitor off of the intergrated graphics card on the mainboard, so I don't imagine I need a driver.

I need some help.