Is it possible to set 800x600 resolution and 16bit colors or you cannot change these settings at all? If so, can you do it in Safe Mode? Either way, I advise to go to safe mode and change settings there.
Was the screen okay before or has it been like this all the time? Anyway, try
newest drivers and if they still don't work...is it 2 MB video card? Also the monitor could be old enough to not work with your desired settings.
By the way...since when is possible to translate Windows 98, like it is on that screenshot?
/ 
