Using TV as an extra monitor, how to get best quality?

[afro_puff]

I use my 20" Sony Wega as a second monitor which I then watch movies on. However, the computer sees it as a second monitor, rightfully so I might add. However, I can set the resolution for the TV to 640x480, 800x600 and 1024x768. There are a few other PAL resolutions in there as well but seeing as how those won't work for me I will disregard them.

Now my question to you is "is there a noticable quality difference with MOVIES/TV shows by using a higher resolution?" Clearly you can see text better with a lower resolution because the "DPI" (not that there is a dpi on a TV) is higher. But with movies I'm not sure if there is a difference.

I use VLC to play DivX, VCD, SVCD, etc out to my TV.