I am surprised that you are having such a hard time with the display, Surely the monitor itself should squeeze the image to fit on the screen. resolutions are rarely that low too, its a terrible design if it cant handle even 800x600. Resolutions on most Video cards go like this, 640x480, 800x600, 1024x768 and so on.. So, as far as i know, (I'm not a "know it all" by any means) you will have trouble getting 800x480 on any video card. The monitor should compensate itself for the widescreen it if has it.
Anyway, I have a lilli as you might remember with the M10000, I am using onboard video and i have the resolution set at 800x600, the monitor screen is probably the same size as your xenarc (7" Widescreen) by scale it should be 800x480 also but the monitor compensates to fit 800x600 on it. (Its a little squished)
I havent had any trouble so far with video, i have played a DVD off the HDD and the video was great, i will try one straight of the DVD drive tommorrow and let you know.
On a different subject i am just curious as to why you use a Desktop HDD rather than a laptop HDD. I use a laptop drive for the shock rating, I hate those damn pot-holes that take you by surprise. Desktop drives can easily be damaged by shock movement. Just so you know....
also Laptop drives use a quarter the power a desktop drive does.. This will greatly reduce your overall power consumption if you have to add that PCI video card.
Still, l think your setup is very well done.
Oh, Do you have any ideas on my not surviving crank issue?