> and a common screen size at the time was 1280x1024

Maybe if you were really rich and only used high end desktops. A lot of the computers I used back then were still 800x600, fancier ones were 1024x768. If you happened to also have a 2D accelerator card you'd potentially have 1280x1024. And lots of apps purposefully ran at a much lower color depth, it was common for games to run at 8 or 16 bit color mode.

I saw a lot of computers set to 800x600 but I don't recall any that couldn't be switched to at least 1024x768. Which is still quite close to 720p for making this comparison.

And yeah lots of fullscreen-ish things ran in lower color, but this is about desktop mode and I never saw a desktop mode that struggled based on color depth.