Changed to 16bpp on 64MB ATI card, less than max. resolution, and problem still exists.

I opened a terminal and ran 'xwininfo', which reported 'Depth: 24', so we know the color depth was set to 24 bpp. I also ran 'lspci' which reported I am not running in the highest resolution, so there should be extra video memory. NOTE: My card has 64MB, see the first screen in the attached image for graphics details and notify-osd problem.

I restarted the system in single-user mode and ran 'Xorg -configure' then edited /root/xorg.conf.new to configure only the video information. Adding 'DefaultDepth 16' was necessary to force 16bpp mode.  'xwininfo' reported 'Depth: 16', and the problem still exists. See the second screen in the attached image for graphics details and notify-osd problem.



/root/xorg.conf.new
--------------------------------
Section "ServerLayout"
	Identifier     "X.org Configured"
	Screen      0  "Screen0" 0 0
	InputDevice    "Mouse0" "CorePointer"
	InputDevice    "Keyboard0" "CoreKeyboard"
EndSection

Section "Files"
	ModulePath   "/usr/lib/xorg/modules"
	FontPath     "/usr/share/fonts/X11/misc"
	FontPath     "/usr/share/fonts/X11/cyrillic"
	FontPath     "/usr/share/fonts/X11/100dpi/:unscaled"
	FontPath     "/usr/share/fonts/X11/75dpi/:unscaled"
	FontPath     "/usr/share/fonts/X11/Type1"
	FontPath     "/usr/share/fonts/X11/100dpi"
	FontPath     "/usr/share/fonts/X11/75dpi"
	FontPath     "/var/lib/defoma/x-ttcidfont-conf.d/dirs/TrueType"
	FontPath     "built-ins"
EndSection

Section "Module"
	Load  "dri2"
	Load  "extmod"
	Load  "glx"
	Load  "dri"
	Load  "dbe"
	Load  "record"
EndSection

Section "InputDevice"
	Identifier  "Keyboard0"
	Driver      "kbd"
EndSection

Section "InputDevice"
	Identifier  "Mouse0"
	Driver      "mouse"
	Option	    "Protocol" "auto"
	Option	    "Device" "/dev/input/mice"
	Option	    "ZAxisMapping" "4 5 6 7"
EndSection

Section "Monitor"
	#DisplaySize	  300   230	# mm
	Identifier   "Monitor0"
	VendorName   "DEL"
	ModelName    "DELL D1028L"
	HorizSync    30.0 - 69.0
	VertRefresh  48.0 - 120.0
	Option	    "DPMS"
EndSection

Section "Device"
        ### Available Driver options are:-
        ### Values: <i>: integer, <f>: float, <bool>: "True"/"False",
        ### <string>: "String", <freq>: "<f> Hz/kHz/MHz"
        ### [arg]: arg optional
        #Option     "NoAccel"            	# [<bool>]
        #Option     "SWcursor"           	# [<bool>]
        #Option     "Dac6Bit"            	# [<bool>]
        #Option     "Dac8Bit"            	# [<bool>]
        #Option     "BusType"            	# [<str>]
        #Option     "CPPIOMode"          	# [<bool>]
        #Option     "CPusecTimeout"      	# <i>
        #Option     "AGPMode"            	# <i>
        #Option     "AGPFastWrite"       	# [<bool>]
        #Option     "AGPSize"            	# <i>
        #Option     "GARTSize"           	# <i>
        #Option     "RingSize"           	# <i>
        #Option     "BufferSize"         	# <i>
        #Option     "EnableDepthMoves"   	# [<bool>]
        #Option     "EnablePageFlip"     	# [<bool>]
        #Option     "NoBackBuffer"       	# [<bool>]
        #Option     "DMAForXv"           	# [<bool>]
        #Option     "FBTexPercent"       	# <i>
        #Option     "DepthBits"          	# <i>
        #Option     "PCIAPERSize"        	# <i>
        #Option     "AccelDFS"           	# [<bool>]
        #Option     "IgnoreEDID"         	# [<bool>]
        #Option     "DisplayPriority"    	# [<str>]
        #Option     "PanelSize"          	# [<str>]
        #Option     "ForceMinDotClock"   	# <freq>
        #Option     "ColorTiling"        	# [<bool>]
        #Option     "VideoKey"           	# <i>
        #Option     "RageTheatreCrystal" 	# <i>
        #Option     "RageTheatreTunerPort" 	# <i>
        #Option     "RageTheatreCompositePort" 	# <i>
        #Option     "RageTheatreSVideoPort" 	# <i>
        #Option     "TunerType"          	# <i>
        #Option     "RageTheatreMicrocPath" 	# <str>
        #Option     "RageTheatreMicrocType" 	# <str>
        #Option     "ScalerWidth"        	# <i>
        #Option     "RenderAccel"        	# [<bool>]
        #Option     "SubPixelOrder"      	# [<str>]
        #Option     "ShowCache"          	# [<bool>]
        #Option     "ClockGating"        	# [<bool>]
        #Option     "VGAAccess"          	# [<bool>]
        #Option     "ReverseDDC"         	# [<bool>]
        #Option     "LVDSProbePLL"       	# [<bool>]
        #Option     "AccelMethod"        	# <str>
        #Option     "DRI"                	# [<bool>]
        #Option     "ConnectorTable"     	# <str>
        #Option     "DefaultConnectorTable" 	# [<bool>]
        #Option     "DefaultTMDSPLL"     	# [<bool>]
        #Option     "TVDACLoadDetect"    	# [<bool>]
        #Option     "ForceTVOut"         	# [<bool>]
        #Option     "TVStandard"         	# <str>
        #Option     "IgnoreLidStatus"    	# [<bool>]
        #Option     "DefaultTVDACAdj"    	# [<bool>]
        #Option     "Int10"              	# [<bool>]
        #Option     "EXAVSync"           	# [<bool>]
        #Option     "ATOMTVOut"          	# [<bool>]
        #Option     "R4xxATOM"           	# [<bool>]
        #Option     "ForceLowPowerMode"  	# [<bool>]
        #Option     "DynamicPM"          	# [<bool>]
	Identifier  "Card0"
	Driver      "radeon"
	VendorName  "ATI Technologies Inc"
	BoardName   "Radeon R100 QD [Radeon 7200]"
	BusID       "PCI:1:0:0"
EndSection

Section "Screen"
	Identifier "Screen0"
	Device     "Card0"
	Monitor    "Monitor0"
	SubSection "Display"
		Viewport   0 0
		Depth     1
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     4
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     8
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     15
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     16
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     24
	EndSubSection
EndSection



/etc/X11/xorg.conf
--------------------------------
# Use xwininfo for color depth information.

Section "ServerLayout"
	Identifier     "X.org Configured"
	Screen      0  "Screen0" 0 0
EndSection

Section "Device"
	Identifier  "Card0"
	Driver      "radeon"
	VendorName  "ATI Technologies Inc"
	BoardName   "Radeon R100 QD [Radeon 7200]"
	BusID       "PCI:1:0:0"
EndSection

Section "Screen"
	Identifier "Screen0"
	Device     "Card0"
	Monitor    "Monitor0"
	DefaultDepth 16
	SubSection "Display"
		Viewport   0 0
		Depth     1
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     4
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     8
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     15
	EndSubSection
	SubSection "Display"
		Viewport   0 0
		Depth     16
	EndSubSection
EndSection