SYMPTOM:
In Project Defaults when adding new color palette the exclamation mark appears and palette is not saved as shown below:

User has granted all Common and Web Privileges as below:

In order to enable Color palette saving the “Bypass all object security access checks” need to be checked.

CAUSE:
It is a known issue in MicroStartegy 10.x
ACTION:
This issue is addresed in Strategy 10.6.