If I can, I play games at 1920x1200 on my 17'' laptop screen, at that resolution with such a "small" screen, I don't even need to worry about GPU-hogging AA, since it really cant make the image any sharper. Of course, my laptop is ~5 years old, so oblivion and anything more demanding than that have to run at low settings anyway.
As far as for gaming, a higher resolution will not ever make anything (excepting text) smaller. It will only make it clearer by displaying the same image with more pixels. A bigger screen size makes things bigger, of course. What size of monitor to use is a matter of personal opinion, but you should run the highest resolution your monitor and system can handle for what is technically best for gaming, since anything in the distance will be a tad clearer, since it's displayed with more pixels.
Of course, whether that increased clarity really makes a significant difference or not is debatable, but if you were trying to snipe with zero zoom someone a mile away, a higher resolution would make it easier. For most purposes though, anything with a vertical resolution of 900+ is good.
As for widescreen 16:9, 16:10, or standard aspect ratio, it depends on the game. Some shooters are more vertical than others, and non-fps games may play better at a square or rectangular aspect ratio. For example ut has a lot more vertical importance than call of duty, and would thus benefit more from the added vertical area of 16:10. Of course, whether the trade off of less horizontal space for more vertical space is worth it is probably again a matter of opinion. I like 16:10, but I know some people that really like the 1600x1200 "square" resolution for gaming, and a lot of people like 16:9 as well. It depends on what game you want to optimize for, and whether you want to favor vertical or horizontal view area more.