Not sure about other monitors, or if you can set it with drivers like NVidia's Detonators, but I recently looked into this very issue myself.
When you have a native resolution like 1280x1024 (a 5:4 aspect ratio), there is simply no way on God's green earth you're going to get a 4:3 aspect ratio like 1024x768 show up the way it is supposed to without stretching of some sort....
...unless of course the LCD blacks out some pixels at the top and bottom ("letterboxing").
I noticed on my own Viewsonic VP912B, which sports a native resolution of 1280x1024 (5:4) whenever I used a 4:3 aspect ratio resolution the screen would "letterbox" and black out some pixels at the top and bottom of the screen to give a true image without distortion.
Of course though there was no distortion, I can't say the same thing about clarity in non-native resolutions, which still suck with LCDs.
My opinion, if you're going to get an LCD, use it in native mode... even with "letterboxing", differant resolutions still don't look as good as a CRT if the LCD is not in its native resolution. If it letterboxes, at least you won't get oval circles!