This is getting a bit convoluted, but I guess thats the price of power.
- Create the image style.
- Create a corresponding view mode and allow it to be used with files
- Enable the view mode for the image field type.
- Go to the image file display and select the view mode from the tabs
- Check colorbox in enabled displays then choose the new image style in ‘Content Image Style’.
Now the view mode will be available for selection when you insert an image.