Well this is definitely an issue with the PCMCIA. When I remove the reader, the color flickering stops. So I got to apply the fix jimbob discovered!!! How really annoying, this problem. I am now thinking my A1200 might be affected by it too, I have noticed some strange flickering.
Now why does Beneath a Steel Sky and other big games lock up? I have no idea... is there any way I can figure this out to help eliminate hardware failure or help recognize a bug or other issue?