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I've always wondered this... anyone know? Is it a technical limitation or something to do with standards? I find 1600x1200 is too small for comfortably manipulating text on a 21" display, but 1280x1024 is unnecessarily large... something like 1450x1088 would be ideal....
It's all about the VESA standards. Theoretically, they could do any resolution they want, but a monitor with continuous variable resolution would be incredibly expensive to design and produce...