I had essentially the same problem.
After reading through endless flamewars on the ubuntu forums of people being incensed about the "marketing hype" of 32 bit color, and noone addressing the true issue of "what to do when app X (in this case a vbox host system) complains about wanting 32 bit color", I found this thread.
So, my xorg.conf exactly matched kchungs. reading man docs, the directive:
should be added to the Device section. Note: Capitol D in driver and double quotes around vboxvideo.
I tried exactly this, using "24" as my bit depth (for some reason my install wanted to default to 16 *shrug*) and now Vbox no longer complains about my video mode. *win!*
I hope this data helps out more folk.
- - Jesse