The optimum resolution for your monitor is 1280x1024. Mine is the same but my eyes can't cope with the size of the print and icons. Try ACOLYTE's solution. Personally, I found increasing the font size distorted the print and the icons stayed tiny. I now use 1024x768 and am quite happy with it. The only, very minor, problem is that pictures are a bit elongated because of the different screen size ratio.
At the end of the day, use whatever you are most comfortable with. It will not harm your monitor or your computer to use the lower resolution.