What sort of monitor you use?

If you use a 4:3 (what I think you are doing because you use 1280x1024), then this normal, because console games are almost always made for wide screen, but some games support a good resolution on 4:3 too, like DOA4.

You can go to the config menu of your 360, there where you change your resolution and there is such option (dont know the name in english) and switch to "advanced". Also dont forget to switch from 16:9 into 4:3.

You should buy a 16:10 Monitor, its like a HDTV. I just bought myself an 22" Acer last week, cheap and pretty good.

22" Monitors are anyway not so expensive any more.

You guys in USA have good, because everything is so cheap...here in EU, those damn monitors are so damn expenisve...