Having the same problem after upgrading to gutsy. The X server correctly 
detects all modes and I can switch to higher resolutions using xrandr, but 
since ion3 doesn't properly cope with that (the additional screen space does 
not get used), I'm now restricted to 1024x768. This happens both with gdm and 
startx.
Hardware: ATI Radeon 7500 on AGP (lspci: Radeon RV200 QW, Xorg: Radeon 7500 
QW), AOC Spectrum (Xorg: model a790) on VGA

What exactly do you need to reproduce and/or fix this bug? The bug
status was set to Incomplete, but no explanation given.

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gsm/startx will ignore xorg.conf resolution settings and run with very low 
resolution
https://bugs.launchpad.net/bugs/152109
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