It is a known bug that 16-bit icons under Mac OS 9 are not displayed properly when the monitor is set to 'thousands' of colors. The icons take on some sort of half 8-bit, half 16-bit look (which does look ok, mind you). In order to have full 16-bit icons you must set your Mac to 'millions' of colors.
In one case your Mac will respond a tiny bit faster, in the other your icons will look nicer... your call...
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Misha Sakellaropoulo
Senior Editor, MacNN
iMac2Day, iBook2Day