Windows Stretching

I have recently had to reinstall my operation system on a old computer, the os is winME, everything seems to have installed ok apart from a annoying problem with the screen, while its on a 800x600 resolution all the icons and relevant programs appear fine but when the resolution is upped to 1024x768 for some reason, pictures,programs and windows for IE & messengers all get stretched to that they appear at the top of the screen and normally the complete top half of any window is streched and appears off screen but when we reset back to 800x600 everything appears back to normal, I cannot figure this out as I do need the resolution set at 1024, I canaot figure out what is causing this, I did have the latest graphic driver installed but had to downgrade as they were causing conflicts, any idea on what could be causing this probelm?

System spec for this pc is as follows

AMD Athlon 1GHZ
256mb RAM
40GB HDD
Nvidia TNT2 32mb Graphics card (drivers 41.09)
Direct x 9.0c
21" Dell P1130 Monitor