X displays even 32-bit color perfectly. X works fine
I think this is a problem with all Redhat distros perhaps. If you have redhat (any version), you can check it out yourself:
Go to a console (with Ctrl+Alt+F2 for instance) and run ls
The directories should appear light blue, but they appear dark blue.
Or better yet, if you have emacs version 21 or above, run emacs and enter the command
It should open a new buffer that should show 16 colors, not 8, if colors are working properly in text mode.