
I recently tried
AviSynth version 2.0.7 on a Win98 system and was quite disappointed to see the output look like 16-bit graphics (that is, with obvious color banding).

To make a long and frustrating story short, I read that Microsoft's
DirectX version 8.1 was buggy, at least as far as colorspace conversion was concerned. After checking the system with
DXDIAG.EXE (in the Windows "system" directory), I found that I had that infamous DirectX 8.1.

Fortunately, the Microsoft DirectX website
http://www.microsoft.com/windows/directx/, aside from having a patch for 8.x, also had the new
DirectX version 9. After a quick download and installation ...
no more color banding!