Outcast.ini is written to at startup, edit the cpu ini file instead (posts 24 and 28).

I did exactly what lexic0n777 suggested above, made sure in 'settings' that it was set to Pentium III 550+ 64 Mb, and then I went into the install directory and edited the Pentium III 550+ 64 Mb.ini. Then I launched the game, and apart from some small borders my problem has been fixed! looks great and practically full-screen now.

that doesn't matter, i use custom settings. this has nothing to do with any of the cpu-inis
as i said, because of the fact, that to both files is written at startup, you have to prevent that by removing the write permissions in both files, so the launcher can't change them.
edit: IT WORKS FINE for me that way, i case you missunderstood me.

Apologies, I completely misread your post.
I couldn't use your exact config because it has references to install paths and such that don't match mine, but copying the video settings and blocking write access does work. From a bit of trial and error, it seems the important part from Outcast.ini is:
VideoWidth=640
VideoHeight=480
ScreenWidth=640
ScreenHeight=480
As you say, higher res makes no difference but making sure those two match gives true fullscreen. Cinemascope is largely dependant on whether you have a 4:3 or 16:9 monitor. The loader still only seems to affect the intro movie.

Aaaah, the loader.ini only sets the video resolution. *facepalm*
well, you're right, it's not needed then.
Yes, these 4 setting are the ones you have to change, thats all.

So...final version for dummies? and how to swith to windowed too if possible :p

lexic0n777, that's your part, you're a native speaker, i'm pretty sure you can explain it much better and understandable than i can :-P

Edit:
This crashes the game when you die, possibly other times too. Removed.

does anyone else get a crash on 640X480 every time Cutter dies and you would normally see the burning picture animation?

Yes, with write permission removed the game crashes when you die. Potentially it could crash at other times too; I guess denying a game access to its own settings file isn't something the designers expected.
The uglier solution for people who aren't models of gaming perfection and might die can be found in posts 24 and 28. You get borders but the playable area should be bigger than normal.
It seems odd that you can't set the videowidth and screenwidth anywhere else in the config files but it doesn't appear to be set in anything outside of outcast.ini. Maybe there's a technical reason that means it needs extra space around theplayable space; I don't recall how it was when I played the original.

Damn...
So we have to live with black bars. would have been to nice...

Until I find a crash other than when dying I think your post was still helpful. If you do put it back up a huge disclaimer might be good, but personally I will play fullscreen with the write permissions off unless I find other game-stopping crashes. Saving often is a workable solution for the dying crash IMO. I'll post if I encounter other errors caused by the write permissions thing..
EDIT - Add using the portals to dying for the list of known things that causes crashes when denying write permissions to get fullscreen...
EDIT Again... Add loading a save from within the game to causes for crashes. Loading from launcher when starting the game up is fine though.

First of all, thanks lexic0n777 and Cyphox for all your trouble trying to give us a solution to the black bars around the game screen. And although your solution could make the game unstable I guess that saving often could help with that. If I reach any catastrophic bug I will revert to the cpu.ini tweak that made playing the game much more pleasant even if with the bars.
Once again thank you guys, and thanks GOG for giving us this gem.
But consistently? You can't use the portals at all?

edit: seems what I wrote doesnt fix it.