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I just spent a few hours troubleshooting some issues, and thought I'd share.

The problem was that the highest resolution (1152x864) was not available in the Graphics Options in the game: the slider stopped at 1024x786. And also the image was stretched at 1024x786: there were no black bars.

Setting cur_res=2 in game.ini manually caused the game to crash on startup.

Then I noticed that the game made available the highest resolution (and with black bars!) on my 3rd monitor. So why on God's green Earth would it work on one monitor but not the other?

The issue is that 1152x864 is a weird resolution, that was not available in my primary monitor. If in Windows 7 you:

Right-Click on desktop > Screen Resolution > select your monitor > Advanced Settings > Adapter tab > List All Modes

Check if it has the mode 1152x864. If it does not, this is precisely why the game is crashing when trying to use this resolution. The game was told to use a resolution that your monitor/graphics card doesn't support.

The solution is to add this missing resolution using your graphics card's panel. I have ATI, so:

1) Open Radeon Settings > Display tab > Click on Custom Resolutions "Create"
2) Change horizontal resolution to 1152. Vertical to 864
3) Change "H.Timing Display" to 1152, "V.Timing Display" to 864
4) Hit Save, and make sure that the new resolution is titled "Display X" where X is the number of your desired monitor as counted by Radeon in this tab. If the resolution was created for the wrong X, I suggest you disable all your other monitors, and try creating the resolution again; this way it's forced to use the only display.

Voila! Don't use the TnL.exe , it causes graphical glitches in menus and dialogue windows. The normal .exe now works just fine with the highest resolution and black bars.

Hope this helps someone!