Hi. LCD flat-screen monitors have a "native" resolution, which is the best resolution for it's pixels. It will display in other resolutions without risk of damage, but with increased processing overhead, and with varying degrees of success.
The resolutions shown available to your monitor through Windows are governed by your monitor's "driver" installation (it's not really a driver, more of a reference file). Check if your monitor is correctly identified in Windows - if it is, then your monitor's colour and resolution settings should be accurately listed for both DVI and SVGA connections. If 1280x1024 is now your highest resolution setting, it's probably not a good idea to change it, even if it "works".
Learn more here:
LCD Resolutions and Picture Scaling