Need help....

So I was attempting to make my icon look like one of famouslstwrdsxx tutorials but instead I got a not so nice result...br />
more under the cut...

Okay so this is the tutorial I used by this wonderful artist

http://famouslstwrdsxx.livejournal.com/7927.html

and this is how my icon turned out http://img90.imageshack.us/img90/937/annytr3.png obviously I improvised after I noticed the color was all screwed up and decided to make it an icon anyway. But I have a feeling my selective color isn't working as it normally would and I think it might have something to do with this
http://img90.imageshack.us/img90/8466/helpxm5.png
Everytime I try to make a NEW image I get this. I remember my old photoshop showed 256 bit and this one doesn't show me this option. Has this happened to anyone else and knows a way to fix it? I think that this is why my selective coloring isn't working properly or other things on my PS for that matter......I don't know what to do! I use photoshop CS2 btw! If anyone could help me out I'd definetely appreciate it =)