There's the problem: When try to set Nvidia stretching in my Nvidia control panel, it automatically turns back to monitor stretching. And therefore, I can't play UFO: Aftershock otherwise than in a small screen, 'cause it's fixed on 1024x768 resolution. I have tried completely deleting and reinstalling drivers, didn't help - and it didn't start doing so after installing new drivers, but... Kinda by itself. I have tried google, but I din't find anything useful. So, anyone else ran into a similar issue? Oh, I have GeForce 9500M graphics card, and using win 7.

This worked for me (the "easy way" that is):
http://forums.nvidia.com/index.php?showtopic=93397&view=findpost&p=532057
The post is a little old and with the latest driver control panel, the custom resolutions are in a slightly different place, but otherwise it still works.

Make sure the game short cut, on the Compatibility tab, has the "Disable display scaling on high DPI setting", "Disable visual themes" and "Disable desktop composition? checked. Might be a the quick solution . . . =)

I have actually managed to work this out before and it didn't work for me,
And, sadly, this doesn't help either.

Beats me, it's a notebook monitor. Funny thing is, it stretching suddenly works when I plug an external monitor in trough VGA

Might also check the BIOS to see if it has an option like Video Expansion, Scaling or stretch. If it does, make sure it is enabled.