Hi silverslc,
Yeah that's a known issue of recent versions of Arcade OSD, probably introduced by the changes I had to do to support Windows 7. The reason this happens is because Windows believes the LCD is plugged all the time and doesn't allow you to set the resolution to the desktop permanently because it knows it's not supported by your LCD. I guess if you boot without any monitor attached and only plug it later while already in Windows you wouldn't have that problem.
The easiest workaround however is to use the Windows display properties dialog, advanced, monitor, show all modes, then select 640x480 and apply, switch monitors fast (you have only a few seconds), and accept.