Originally Posted by Prime Junta
First off, if the scaling algorithm is any good at all, 720p scaled up to 1366 x 768 will look very good. (FWIW, I have a 1080p monitor, but my video card is rarely up to the challenge, which means I often play games at around 720p resolution on it, and it also looks pretty good.)
So, I think that one your main problems -- the jaggies -- is due to the limitations of the XBox, and nothing you can do with your monitor will fix that. Another problem -- the letterboxing -- is due to the shape of your current monitor. Any widescreen monitor or TV will fix that.
So, my advice? If this is mainly/only for games, buy a small LCD TV with an HDMI input from a respectable manufacturer. That's what the XBox is primarily designed to work on, it's bright, it's optimized to handle motion, it will scale things as needed very well, including anamorphic scaling which monitors rarely do, and it's plug-and-play.