I've been having this problem with a lot of older games and I think it has to do with Aero but I can't figure out how to fix it. I'll boot up something like MechCommander or Baldur's Gate and it begins exhibiting green and red pixelations(Like JPEG artifacts) over textures and the UI and in MechCommander it later began to have trouble rendering textures or colors properly at all.

Afterwards I would show similar pixelations on the window borders of my desktop and the start menu itself. I think it has something to do with aero, as turning off the transparent feature makes the graphical glitches go away on my desktop, and turning it back on returns them.

Later on it began doing it in Baldur's Gate (The pixelations, not the game crashingly graphics bugginess) So I'm trying to hunt down a real solution to this other than to not play at all.

I'm running BG without mods, GoG version as installed, on an ATI Radeon HD 5770, with 8 gigs ram, a quad core CPU, and in XP(sp3) compatibility in 256 colors with 640x480 resolution.

BG is Hi-Color ( 65,535 colors ) ... so why would you limit it to 256 colors?
That is probably the cause of your problems.

After disabling that, you can also try my new mod "IE DDrawFix" :-)

http://bitpatch.com/ie_ddrawfix.html

Actually the cause of the problems is something unrelated to any of those, as it was doing it before that, and has been doing it to other games. However, the reason I did that was because I didn't know if it was or was not. It didn't help or hinder the program at all, either way.

Disabling Aero actually seemed to have made it much, much worse. Will repost if DDraw doesn't work out.

The DDraw fix definitely seems to have solved all the problems. Will see if it holds up to a nice long session of baldur'sgating! Thanks a bunch!

It sounds like the same symptoms as a graphics card overheating and/or dying. My old Nvidia card went out exactly the same way. Also think Win7/Aero uses the graphics hardware, too.