Comment 28 for bug 43223

may I add just my 2 cents:
I run Ubuntu Hardy 8.04.1 with a Radeon 9200 card. I had this problem (funky colors on shutdown splash) presumably after a kernel update, that added a line ending with vga=792 (1024x768, 16M colors) to grub's menu.lst. Not only the shutdown splash was affected, but also the full screen terminal modes (alt-F[1-6]), showing strange and very dark colors, barely readable.

This problem went away when I removed the vga option, but terminals where at 640x480. I tried vga=791 (1024x768, 64k colors): problem remained, and vga=773 (1024x768, 256 colors): problem fixed! It seems that terminal modes with more than 256 colors are not supported (by my card? the kernel driver?)

So anybody affected by this bug: try replacing the vga mode in the corresponding line of /boot/grub/menu.lst with one with the same resolution, but only 256 colors. This will probably fix it.