It seems to really help in areas that chug in Kingdom Hearts, the areas that ran at high fps didn't change much. One place that I really noticed a difference is the waterfall which increased from 31/32 fps to 48ish fps. I tried them seperately and only setting it for 256 colors seems to have an effect. The game itself seems to look the same.
I've got a 256mb card as well.
It seems to have no effect on the max fps with AA off.