I believe the interpolation on the flat panel depends on the graphics card. Most newer graphics cards(with flat panel support) have a ratiometric interpolation feature, which uses algorithm to expand the pixels not by doubling them, but by using a geometric algorithm, hence, when a user changes from an lcd panels native resolution, the same ratio of pixels remain, providing a better picture, if you lower the resolution on your panel.
Older notebooks that uses older graphics card does not have these feature, thus, if a user changes from the native resolution, in order to acommodate the active area space on a lcd panel, then some pixels are either doubled or not. This hence gets "ugliness". However newer notebooks that uses ATI mobility graphic adapters usually has ratiometric expansion feature.
So, basically, if you wanna get an lcd panel, also get a good graphics card with it. I recommend using a card that supports any form of digital output, and an lcd panel that supports it, since changing from analog to digital is succeptible to signal loss.