ATI is not the most Linux friendly of graphics cards. In order for the graphics
to work properly you need both the right graphics card driver and monitor
driver.

When it defaults to a lower res it is a sign that your graphics card is not
setup properly to work with the settings that you are asking it to run at.

Generally speaking there are open source and restricted drivers in the
repositories. Use the restricted ones if you can as they are usually better. You
can also use an application called Envy to build a graphics driver for your
system. It supports both Nvidia and ATI cards.

To see what hardware you have attached open a terminal and type: lshw

It will give you a list of your hardware and look for the display line and see
if your graphics card is properly detected.

Some fun reading:
http://ubuntuforums.org/showthread.php?t=679759
arichuang.wordpress.com/.../gutsy-gibbon-710-xgl-ati-fglrx-compiz-\
fusion/