Can't set monitor display for 16 colors

Am using Windows 98SE. After development of a lot of file
corruption on my hard drive, I reformatted it with the
system files and reinstalled Windows 98SE and AOL 9.0
Security Edition. When I tried to reinstall Windows 98
Internet Pack Service Pack 1, I got the error message:

"Microsoft Internet Explorer 6 CD Warning: Title 'Bitmap'
has 8 bits per pixel. It must be changed to 4BPP[16
colors]"

I clicked "OK" to the message, then ran the gauntlet -
"Start" > "Control Panel" > "Settings" and got a
beautiful spectrum of 16 colors, which I assumed was the
default setting. There was just one other option - 2
colors, so I clicked on that and "OK" and restarted the
machine. The 2 color display was downright ugly and of no
practical use other than for text files. I then retraced
the "Start" > "Control Panel" > "Settings" route and
clicked "16 colors" and "Apply". After I restarted the
machine, I found nothing had changed for the better. I got
the same message "...'title' bitmap has 8 bits per
pixel...".

I did not encounter the dread message when I reinstalled
Screen Shot 2.0 and WinZip 9.0 successfully.

I then repeated the foregoing rigamarole involving the
Windows Update Internet Pack several times, to no avail,
and thought about starting all over again with Format. On
second thought, I decided I needed expert help. so here I
am.