Consider :

• You can NOT get a higher color depth/resolution from a session than your video card on the client computer supports, even if the video card from the server computer supports it.
• The OS running Terminal Services (server) DOES count.
• Windows NT/2000 Terminal Services does NOT support a color depth higher than 16 bit. If you run these OSs and want better, don't bother, you won't get it.
• Windows XP's DEFAULT Maximum Color Depth is ALSO 16 bit. This explains why when you try to use a 24 bit color depth option with rdesktop you will get WARNING: Color depth changed from 24 to 16 or something to that extent.

Here's the solution for Windows XP and Server 2003:

1. Go to Group Policy Editor gpedit.msc
   
   
2. Go To Terminal Services in Administrative Templates / Windows Components
   
   
   
3. Go to Limit Maximum Color Depth properties
   
4. Change value to Enabled and Color Depth to 24
   
5. click OK

In Remote Desktop client, go to Options / Display