I think you will notice a difference going from 1280x1024 to wide screen resolutions.
Is there a difference between 1600x900 and 1920x1080 other than performance? That may depend on how the game was designed. Some games may simply provide you with the same field of view; but 1920x1080 will have a little more details. Or, the game will provide you with a wider field of view since 1920x1080 has more pixels.
1920x1080 on a 21.5" monitor is a bit too small for me. I feel more comfortable with 1920x1080 on a 23" - 24" monitor. Then again I sit about 22" - 24" away from my monitors. Therefore, if my only choice is one of those two monitors in your post, then I think I would go for 1600x900.
I know more 1920x1080 and 1920x1200 monitors than 1600x900. There aren't that many monitors in that category to the best of my knowledge. I guess I would go for the following Acer for $115
http://www.newegg.com/Product/Product.aspx?Item=N82E16824009256
If you want a 1920x1080 monitor, then I recommend the 23.5" Asus VH242H for $170 (after $10 rebate) since it has received pretty good user reviews.
http://www.newegg.com/Product/Product.aspx?Item=N82E16824236052
=============================
I have an Asus VK246H which is the same as the VW246H, but has a built-in webcam. You can buy the 24" VW246H for $180...
http://www.jr.com/asus/pe/ASU_VW246H/
You can read my detailed review of the Asus VK246H in the link below. It also applies to the VW246H since the only difference is the webcam that I mentioned before...
http://www.tomshardware.com/forum/58336-3-official-flat-panel-monitor-reviews-thread