Are you certain you're not thinking about banding from 24 bit bitmaps being converted into 16 bit bitmaps, rather than down to 256 colours? ATI drivers did have a problem related to texture preference, where if you created a texture without specifying the exact bit depths wanted, it sometimes chose 16 bit instead of 32 bit (e.g. GL_RGB versus GL_R8G8B8 -- can't remember the exact constants though).