The color depth of my remote desktop session has become low (256 colors/8 bit). How can I fix this?

This seems to be related to a known problem with Windows Server 2003 Service Pack 2: “The color depth is unexpectedly changed to 8-bit when a high screen-resolution setting is used in a terminal-server session that is connected to a Windows Server 2003-based computer”

Applying the hotfix from http://support.microsoft.com/kb/942610 fixes the problem.

If applying the hotfix and restarting the server still does not fix the problem, confirm if the following registry key exists on your server:

Registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control
\Terminal Server
Registry entry: AllowHigherColorDepth
Type: REG_DWORD
Value: 1

If it does not exist, add it and restart the server.