No, other way around. The monochrome mode uses a 1-1 pixel mapping, so it's true 1024x600, but the color mode uses a novel pixel layout that does not have each color component in every pixel:
Without having seen it, or even good pictures of it, I would assume the color mode would still have full resolution, but that colors would appear "wrong" but not neccessarily less detailed.
You guys do know that there is no full color pixel?
At least when i look at the recent display comparisons, it's always a matrix of different red, green, blue pixels:
Of course, but the point is that there are usually (e.g.) 1024 red pixels, 1024 green pixels, and 1024 blue pixels, per-row. This screen has 1024 color pixels per-row total, in a novel layout.
http://en.wikipedia.org/wiki/OLPC_XO-1#Display_resolution
So, while the resolution always remains 1024x600 as far as software's concerned, the effective resolution is a third when using color.
(Note that the new screen is, I'm sure, not identical to the XO-1 screen, so you can't assume that the Wikipedia description will be accurate for it.)