I guess you just set UAE to use a different display type rather than the native Amiga chipset. Then hope your Workbench install has things like RTG graphics setup properly.
It looks to me from first screenshot, Workbench GUI is only using 8 colours to mix from, that's why the display looks awful. The system reserved the first few colours of a pallette for display so windows and gadgets were always visible, at least. It made it difficult to have an invisible and unclickable desktop.
It made looking icons uniform in colour somewhat tricky. Especially if they were inherited from early Amigas. Kind of Commodore 64 icons...

Anyway, setdisplay to Picasso IV or Cyberview or a-n-other RTG graphics, and you should be able to see properly. If you have the drivers installed Amiga side to take care of it (sounds like it).
This version of Amiga Workbench I'm using came from the Cloanto Amiga Forever 2012 DVD, I copied it over into Windows 7 folders for use with WinUAE 3.4.0, and as far as I know the only loss has been Amiga-specific file attributes.
... ingenious. I think doing that, especially on files that became write protected and uneditable without the protection bit being reset, would lobotomize any operating system. Not just AmigaOS, any of them, I reckon.
Preserve your flags. Be proud of them, wave them high... or at least make sure the OS can handle them. Otherwise you are asking for trouble. Setting up a system, it has to be organic enough to remember changes.
Later on you back up your progressing, and then you might turn as much as possible into protectable, non editable, but not from the beginning.