I always thought it had something to do with the VRAM. If you had too much VRAM you could not take the Mac down to black and white.

I think the cutoff was 2 MB. I remember that my Power Macintosh 6500 (with ATI 2 MB graphics) could go down to B/W. The very first iMacs also had ATI 2 MB graphics and so could probably go down to B/W as well.

For some reason, I remember taking my Power Macintosh 6500 down to black and white, but I also remember that I could not play SimCity Classic on there because it could not go down to 16 colors. I'm not sure why I have these conflicting memories.