Is the video connection running via VGA or DVI cable? Have you tried the other? Do 3D modes work?
I suspect a RAM or RAMDAC failure (for VGA) - both non-servicable), probably you're best off looking for a replacement gfx card.
Well it isn't a hardware fault on the GFX card at least as I have now replaced it with my backup (100% identical) card and still the same outcome. I will try Knoppix CD OS and see how that fairs. I will edit the results on this post a.s.a.p.
[EDIT] Ok it seems to be a Windoze related issue (surprise, surprise), I ran it via Puppy v2.02 (Knoppix wouldn't run) and all the colours on that are pin sharp and correct.