I sorta got it working. What I did was before you change the color pallete like chris says to do, you save the pallete as a .pal file. then do what chris says, edit the image, then change it back to the original pallete file (it should appear black again) Now go to save as, then save the new image as something different, and when it prompts for the bmp format make sure it's 8 bits, NOT compressed, os/2 format and it seems to work, it will let me import the new image.
Only problem is that when I replace the file (have to boot under safe mode otherwise xp keeps writing over it) it doesn't work, it just reboots and says windows wasn't able to boot correctly... maybe because the edited file is larger than the original? Maybe they changed it for sp1 so that it's harder to get it to work? anyone know?