What windows sets at first is not important. Does it let you up it to what you want. As you increase the resolutions the icons will get smaller sinse the icons are drawn with a fixed number of pixels and if you increase the number of pixels on the screan, you will decrease the size of each pixel. Set the refresh rate for optimal if the option is avaluable. Also set the resolution that you are comfortable with. Then up the color depth to 32bit. If you can not set the color depth to 32bit at higher resolutions, then you have a junk graphics card. Even my old S3 VergDX 4MB PCI graphics card could do at least 24 bit color at 1024x768 (and possibly a bit higher).
Now if it keeps changing the color depth back or will not let you change it then you have problems. You can increase the point size of teh text to make it larger at higher resolutions and you can make the icons larger too (at least I think you can in Windows 98).