Unluckily, it is not that easy, Rick. Your proposal is basically something like a matte colour. As opposed to matte, which only influences pixels with 0 < alpha < 1 , your approach fills a bounding box.
The problem with both matte colour and your approach is that they depend on knowledge of the widget background colour - and you really don't know it! You cannot assume that the background is grey. The user can set an arbitrary colour as dialog background colour, and that one will be used for tabs just like for everything. So your approach would result in a visible box around all icons (in the colour that you have chosen) for everybody who uses a custom colour scheme - very bad. Apart from that, many platforms draw their widgets with gradients rather than solid colours, a bounding box or matte gives very unpleasant artifacts here.
It is nevertheless possible to configure the installer to install the lower quality images only for Windows 2000. In my opinion, this would be the most acceptable compromise for everybody.
Forcing everybody to live with a lower quality only because one single platform does not properly work with alpha does not seem right to me personally (I think that was the reason why Yiannis decided against the 8bit images when packaging RC2, too). I really perceive the quality as disturbing. Not only the flag, but look at the blue gear. At larger bitmap sizes, this does not matter at all, but in 16x16, it makes a big difference.
Making 8 bit paletted versions of all images is technically not a big problem really, you can feed imagemagick from a bash script, all you need to do is grep the filenames right. I did that for the files which are in the patch, takes a few minutes. But you have to sort them and configure the installer properly! This means a lot of extra grief for the poor guy who must package the releases (Yiannis in this case).
What about the startup screen? It displays fine in Windows 98, so what about Windows 2000? If that does not work either, we would consequently have to change that too. This, however, would mean to move a compile-time conditional to runtime and check against W2K, displaying the non-transparent screen for W2K only. So we are getting one ugly hack after the other...
Yet another issue are plugins. Most of them come with icons too.