I got bitten by the same annoying bug. My remedy was to add two raster functions to the Mosaic Dataset:
1. Make sure your Mosaic Dataset is 1-band 8-bit unsigned
2. Create a colormap (*.clr) file from one of the images, say image1.tif > image1.tif.clr (Symbology tab for the image)
3. In the database (file/sde) double-click the Mosaic Dataset, and then navigate to the Functions tab
4. Right-click your existing Mosaic Function (the bottom most function, default) and select Insert Function > Colormap Function
5. Navigate to the Colormap tab make sure the Colormap radio button is selected, then add your .clr file using the bottom folder button to find it, press OK
6. Then do the same again, but select the Colormap To RGB function, while right-clicking the Colormap Function you just added.
From top to bottom, you will now have:
Function Chain
<your own Mosaic Dataset name>
Colormap To RGB Function
Colormap Function
Mosaic Function
You may also need to adjust output data such, that you have 8-bit unsigned, in each of the functions. Might not be needed. YMMV...
If you have images that have individual colormaps such, that if you add one colormap as a file like above, the result will look like something the cat threw up on your kitchen floor. Then you need to use a different technique:
1. Make sure your Mosaic Dataset is 3-band, 8-bit unsigned
2. Create a Raster Function Template file (.rft.xml) and add the function Colormap To RGB to it and save the file
3. Apply this function on each of the images using the Toolbox tool Edit Raster Function (note the checkbox at the top to apply the function on each image instead of to the Mosaic Dataset).
This last technique might not be optimal if you have many images, since each image has to be converted using a raster function, but it works.
Good luck!
