No color when using DVI/HDMI out

Hi folks,
I am having a peculiar problem with the display on my HTPC- I don't see any color; the display is greyscale. The HTPC is an older Compaq computer with 3.2 GHz Pentium D (running Windows XP) with Vistiontek ATI Radeon HD3450, 512 Mb graphics card (PCIe x16), hooked up to Optoma HD70 projector. I use HDMI connections. The setup worked just fine until one day when the computer booted into greyscale display. DId the following to troubleshoot:
1) I played with the display settings, no help. 2) changed the HDMI cable to confirm if the cable wasn't faulty, 3) Used an LCD monitor (instead of the Optoma HD70), still see the same greyscale display, 4) When I used the VGA out on the same HD 3450 graphics card, I can see the color display. This means only digitial output is greyscale. 5) I unstalled the device and drivers, reinstalled everything. No help. 6) Bought another card from NewEgg (BIOSTAR VN9402TS51 GeForce 9400 GT 512MB 128-bit GDDR2 PCI Express 2.0 x16 HDCP Ready Video Card), digital output didn't work, however S-video and VGA display color. 7) Borrowed another card from a friend (BFG - NVIDIA GeForce 8400 GS 512MB DDR2 PCI Express Graphics Card) which, to my surprise, worked with digital as well analog displays! 8) Another interesting thing is that I have Ubuntu 8.10 installed on the same system. Even Ubuntu displays greyscale whenever Windows XP does so. This is very surprising, as I was hoping that the problem had to do something with the software/driver issues in Win XP.

Does anyone know what is going on?