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Symptoms
All icons - including your desktop, file and start menu icons - have a low number of colours and consequently do not have the same 'quality' as they previously did, even in a screen mode of 16 or 32 bits (65,000+ colours.) A typicial example of this is shown to the right with 4 bit/16 colour desktop icons in front of a 16 bit/65k colour image.
Cause
The registry value of "Shell Icon BPP" is set incorrectly - usually to a value higher than the current screen mode. For instance a setting of 32 on a 16 bit screen mode.
Resolution
Increase the number of bits in the screen mode. To do this go to Control Panel > Display, settings tab and change the value in 'Colour quality' to a higher value.
OR
A more cleaner resoloution is to change the affected registry value: HKEY_CURRENT_USER\\Control Panel\\Desktop\\WindowMetrics\\"Shell Icon BPP" to match the number of bits in the current screen mode. To ascertain the number of bits in the screen mode follow the steps above.
This specific issue refers to when all Windows icons are affected, if you are having an issue with just some of them, it can be fixed by Rebuliding Icons (Windows).
See Also
Annoyances.org re: Question about 'Use True-Color Icons'
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