I'm playing it at 1280 x 1024. I know that's kind of a "weird" LCD resoultion, some games don't support it, so I've also tried 1024x768 and 800x600. 1280x1024 is native though, so I can't try any higher.
If the movies are seriously 1600x1200, how many people can actually get that? Besides the monitor size, you'd have to have a pretty good video card.
The movies sound a bit better, but it seems like I would have to upgrade my monitor (and video card probably too), which isn't worth it.