BOTH the Xenarc and Lilliput displays have a native resolution of 800 x 480. That's 800 pixels wide, and 480 pixels tall. If you send an 800 x 600 signal it has to
downsample (or whatever you want to call it) the vertical resolution from 600 to 480. So it's only 80% as tall, it's "squished" (or stretched, but I think squished is more accurate).
It doesn't necessarily drop 120 individual lines, it might use that information to 'blur' some other lines, but you're missing vertical resolution.
If you tell the Mac to send a 800x480 signal you don't have any of these issues. You can use a variety of apps:
SwitchRes,
cscreen, or
DisplayConfigX.
~Lake