Twinrehz,
I just got a stroke in a custom shade of purple (and now I'm on Version 9, since it's the weekend and I'm home!!  ). I started with a blank canvas, transparent background, RGB mode. My foreground was already purple (from something I had worked on previously), and my background was black.
I'm not sure why your color defaulted to red. When I went to the Edit menu, and selected Stroke, I actually had the option to select a color as well. It showed my foreground as the default, but I could change it by clicking the color swatch on the dialog box. When you change the swatch on the dialog box, it changes your foreground on your toolbox.
If you're just looking for a simple circle, TrentonD's solution works very well. If your shape is odd, though, it can cause almost like "corners" when you contract.
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