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Yes, pixel depth refers to 16 or 32-bit. The Microsoft version can use 32-bit, but the full version needs 16. Some cards, like 3Dfx, automatically switch to 16-bit for all 3D applications, others must be set manually, and some just re-interpret 32-bit graphics as 16-bit on the fly.
As far as frequent resolution changes being hard on the monitor, I can't say. None of my monitors here show any ill effects after several years of constant res changes, but I'm not an expert.
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