I notice it's trying for 8 bit mode. I posted a patch a while ago to do with palette colours that was not been accepted (I'm busy right now but should get back to modifying it eventually). Try applying that and see if it fixes the problem. I've attached it. Failing that, I'd be interested in the portion of debug statements dealing with the SetTextColor call and the ExtTextOut call (if there are those calls for that particular string of text).
Glenn
I can't find anything on this SYSPALETTEINDEX you are using, but I know that colors created with DIBINDEX macro have 0x10 in their high byte. So you probably need to add some tests to get this patch applyed.