Can't set display for 16 colors

Had been using Windows 98SE for more than a year. Recently, a lot of
corruption developed on my hard drive. In desperation, or frustration, I
finally reformatted it and then reinstalled Windows 98SE and AOL 9.0 Security
Edition. When I tried to reinstall Microsoft 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 band of 16 colors, which I
assumed was the default setting. There was just one other option - 2 colors -
so I clicked on that, then "Apply", and restarted the machine. The 2 color
display was downright ugly and of no pratical use other than for text files.
I then retraced the "Start" "Control Panel" "Settings" route, clicked "16
colors", and "Apply". After I restarted the machine, I found nothing had
changed for the better. I got the same message "...Ttitle '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 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.