They don't decrease for me the lower i go, unlike the demo, as i played that just about full screen at 1280x800, i only had 2x very thin bars top and bottom on that, but same res in the game, and i get the same huge bars as i do at 1280x1024, or any res.
Decided to have another try playing it now, and im actually getting used to the letterbox format, i also turned off AA which seems to have sorted a lot of the pausing/stuttering, so its playing better now as well, and im actually enjoying it now to.
That buzzing noise on the PDA is bloody annoying though.