In 12.04 with CRT and VGA screen I had this issue...http://forum.linuxmce.org/index.php?topic=13459.0
see reply #6
...(CRT/VGA/8400GS) and I managed to get around it.
Now I am using completely different hardware (HDTV monitor (1680x1050 max), DVI/8500GS) and adding a modeline and modes either kicks me out to command prompt - no X window and I am provided with a small LMCE window.
I have tried AVWizard in various configuration 1080, 720, etc. but no luck.
I have tried various xorg.conf setups.
When I go to KDE desktop (via LMCE menu) the KDE screen is properly rendered. Only LMCE screen is small.