diff --git a/inc/IDirectDrawPalette.h b/inc/IDirectDrawPalette.h
index 3762897..e1f2ff4 100644
--- a/inc/IDirectDrawPalette.h
+++ b/inc/IDirectDrawPalette.h
@@ -17,6 +17,7 @@ typedef struct IDirectDrawPaletteImpl
 
     int data_bgr[256];
     RGBQUAD* data_rgb;
+    DWORD flags;
 
 } IDirectDrawPaletteImpl;
 
diff --git a/src/ddpalette.c b/src/ddpalette.c
index fb2c0f5..d1e9eb0 100644
--- a/src/ddpalette.c
+++ b/src/ddpalette.c
@@ -30,14 +30,6 @@ HRESULT ddp_SetEntries(IDirectDrawPaletteImpl *This, DWORD dwFlags, DWORD dwStar
 
     for (i = dwStartingEntry, x = 0; i < dwStartingEntry + dwCount; i++, x++)
     {
-        /* Knights and Merchants video palette bug test code
-        if (i == 0 && lpEntries[0].peBlue == 255 && lpEntries[0].peRed == 255 && lpEntries[0].peGreen == 255 && g_ddraw->width == 640 && g_ddraw->height == 480)
-        {
-            lpEntries[0].peBlue = 0;
-            lpEntries[0].peRed = 0;
-            lpEntries[0].peGreen = 0;
-        }
-        */
         This->data_bgr[i] = (lpEntries[x].peBlue << 16) | (lpEntries[x].peGreen << 8) | lpEntries[x].peRed;
 
         if (This->data_rgb)
@@ -49,6 +41,25 @@ HRESULT ddp_SetEntries(IDirectDrawPaletteImpl *This, DWORD dwFlags, DWORD dwStar
         }
     }
 
+    if (!(This->flags & DDPCAPS_ALLOW256))
+    {
+        This->data_bgr[0] = 0;
+        This->data_bgr[255] = (255 << 16) | (255 << 8) | 255;
+
+        if (This->data_rgb)
+        {
+            This->data_rgb[0].rgbRed = 0;
+            This->data_rgb[0].rgbGreen = 0;
+            This->data_rgb[0].rgbBlue = 0;
+            This->data_rgb[0].rgbReserved = 0;
+
+            This->data_rgb[255].rgbRed = 255;
+            This->data_rgb[255].rgbGreen = 255;
+            This->data_rgb[255].rgbBlue = 255;
+            This->data_rgb[255].rgbReserved = 0;
+        }
+    }
+
     if (g_ddraw->primary && g_ddraw->primary->palette == This && g_ddraw->render.run)
     {
         InterlockedExchange(&g_ddraw->render.palette_updated, TRUE);
@@ -65,6 +76,7 @@ HRESULT dd_CreatePalette(DWORD dwFlags, LPPALETTEENTRY lpDDColorArray, LPDIRECTD
     dprintf("     Palette = %p\n", p);
 
     p->lpVtbl = &g_ddp_vtbl;
+    p->flags = dwFlags;
     ddp_SetEntries(p, dwFlags, 0, 256, lpDDColorArray);
     IDirectDrawPalette_AddRef(p);