Eris, I think your problem might be your lack of video card. From what you told me about your system settings, it sounds like you have integrated video. Find out how much video ram you have, as Morrowind requires at least 32mb.
Did you recently upgrade to XP, or did it come on your system? If it is a fairly new computer, you should have an AGP graphics card, or a good amount of integrated video ram. Or so I would think. Do some more poking around at system settings when you get up.
I think the reason you can't get up to 32 bit is because you don't have the capacity for it. Here's what the site lists as minimum requirements to run the game.
MINIMUM SYSTEM REQUIREMENTS:
Windows ME/98 128 MB RAM; Windows XP/2000 256 MB RAM; 500 MHz Intel Pentium III, Celeron, or AMD Athlon processor; 8x CD/DVD-ROM Drive; 1 GB free hard disk space; Windows swapfile; DirectX 8.1 (included); 32MB Direct3D Compatible video card and DirectX 8.1 compatible driver; DirectX 8.1 compatible sound card; Keyboard; Mouse
RECOMMENDED:
800 MHz or faster Intel Pentium III or AMD Athlon processor; 256 MB RAM; NVIDIA GeForce2 GTS, or ATI Radeon 7500 or faster video card.
SUPPORTED VIDEO CARD CHIPSETS*:
NVIDIA GeForce4; NVIDIA GeForce3; NVIDIA GeForce2; NVIDIA GeForce 256; NVIDIA TNT2; ATI Radeon 8500; ATI Radeon 7500; ATI Radeon 7200; ATI Radeon; ATI Rage 128; Matrox G550; Matrox G450; Matrox G400