Sometimes the driver display software will put a cap on the system resolution settings.
For example, if you have an Nvidia video card, the Nvidia control panel may have a default resolution cap, that is lower than what you have set the W7 display properties to be. If this is the case, you need to check the Nvidia display properties, to make sure they are also set to your desired resolution.
By the way, just wanted to verify that you are setting the resolution to 1280x1024.