Well ... not quite so simple. First, with regard to LCD monitors ... almost all 17" and 19" LCD monitors are NOT 4:3 !! [Callandor --> measure your screen :-) ] ==> they are 5:4, and their native resolution in most cases is indeed 1280 x 1024. The earlier 15" LCD's were 4:3 with a 1024 x 768 native resolution; and in larger sizes the panels (for non-widescreen models) tend to be 4:3 (with either 1400 x 1050 or 1600 x 1200.
But since neither of your displays are LCD's, that's an "oh by the way" type of comment ...
First, your Dell (assuming the model # is indeed an E771p as reported on the Settings page) is only a 17" display (not 19") ... AND although it is a 4:3 monitor, it will accept up to a 1280 x 1024 resolution input ==> so the VESA DDC communication is working fine with this monitor; and your drivers are correctly limiting the display to that value.
I suspect the "rubbish cheapy 15" monitor" you "dug out of the garage" does not support VESA DDC communication; so the board doesn't know what it's capabilities are ==> and is therefore simply showing all display modes that the CARD (the ATI graphics card) is capable of (2560 x 1600 is indeed the maximum resolution for an X1650). Be CAREFUL ==> you can damage your monitor by sending it the wrong signal !!
Bottom line: Your card is working fine :-)