I've been told that the WAP 1.2.1 browsers on Nokia phones shipped in Australia are capable of displaying colour images, even on phones with colour screens, and that for colour images, you have to use XHTML instead. Is this correct? Is there anything that would prevent display of colour images in a WAP 1.2.1 browser?
Being able to view colour images is not dependent on whether you have WAP 1.2.1 or XHTML Mobile Profile browser. If the phone has WAP 1.2.1 browser and support for colours, images can be seen in colours. Please take a look at the Nokia WAP Phone Characteristics document to find out, which image formats are supported in different Nokia WAP Phones.
XHTML Mobile Profile with WAP CSS provides a lot more possibilities to use colours than is possible with WML. You can define e.g. different backgroung colours, colours for texts, links, borders etc.