Well I have to say most of the suggestions here are not bad but to quote Mr. Wolfe: "let's not start suckin' each others d*cks quite yet."
Here is the non work around that will fix the rainbow color issue as well as the 100%CPU issue in windows 7 (32 bit) for Fallout 2.
Assuming you have fallout 1.02+ and have killapps patch installed and assuming you haven't messed with the compatability setting. heres what y'all need to know......
Open the ddraw.ini file located in the fallout 2 directory. change graphics mode to 4 (this enables DX9 instead of default 8bit) if you have a huge screen then make it 5 for windowed mode.
Change globalshadermode to 3 (this takes some of the load off the CPU and reroutes it to the GPU.
Way further down you will find :
Set to 1 for force fallout not to use multiple processor cores even if they are available
Ok heres where it gets interesting. if you have a dual or quad core then you can keep this setting because theres no need to have all cores going when one is more than enough.(enabling all cores does not even out the CPU load or make the game run any better but will create more heat and stress on the CPU and actually could make it run slower if it got hot enough.
But this is where it really gets interesting.
If you have a netbook with a single core Atom CPU N455 and up you need to change the setting to SingleCore=2 The reason for this is that the GPU has a smaller dedicated core built into the Atom and most programs see it as a dual core even though it is not. Its odd I know but this frees up some CPU power when properly used.
No need to create .bat files and no need to open the screen resolution window to play fallout 2.
As far as the other settings go in that file, DONT BOTHER. If you try to match the screen resolution to your 1024x600 native, it won't look good either. its really odd but it has to stay at the default 640x480, and when the game starts up its much crisper. Don't quite get why that is but it all works quite well in the end.