Its something to do with the framebuffer, this is all tech mumbo-jumbo to me. So this is the easy way to fix it:
Edit your /etc/lilo.conf to look something like this:
timeout = 1200
# Override dangerous defaults that rewrite the partition table:
# Normal VGA console
vga = normal
# VESA framebuffer console @ 1024x768x64k
# VESA framebuffer console @ 1024x768x32k
The important bit in the lilo.conf is that you switch from VESA framebuffer to "vga = normal".
After that, run lilo from terminal as root to update your mbr.
Reboot and you will see a slightly simpler bootsequence, but the pesky multicoloured dots are gone when switching from init 4 to init 3....
Hope this made some sense... Works for me anyway