This post is out of date. Please see the information posted at topic 736 for details about changing the display resolution.
The XScale frame buffer driver is at drivers/video/pxafb.c.
How can I set the framebuffer to 16 bits per pixel?
To change from 8 bits to 16 bits per pixel you must modify the framebuffer driver source code and rebuild the kernel. The framebuffer driver is in the file linux/drivers/video/sa1100fb.c. In 2.4.9 and above, you change the line for your system where the structure member bpp is set. For example, for a Bitsy board you would find the lines: