Without further hardware specs its hard to given an accurate "diagnosis", but your current limiting factor may be the graphics card in your computer (/laptop) which doesn't support resolutions higher than you are currently getting.
No idea if HDMI resolves this, but if you're building a new box/media centre then ensure that the maximum output resolution matches (at the very least) the capabilities of the monitor/TV.
For example, I've an old (~7yrs) Dell Lattitude X300 that I can plug into a 32" TV which supports a huge amount of real estate (can't remember exactly without checking), but anyway, plug it in (via VGA) and I can only go to 1024x678 because thats the limitation of the graphics card.