To run windows on the arcade monitor, you have a few options...
640x288 Non-Interlaced
640x480 Interlaced
800x600 Interlaced
1024x768 Auto-Pan (XP and 2000 only)
As you say, 640x288 non-interlaced is small and hard to use but at least it's not flickering.
640x480 Interlaced and 800x600 Interlaced both flicker a LOT but you can use them if you need to configure windows.
Eventually, my MAME computer will be running Windows 2000 and I'll give the autopan a try but for now, I'm using 640x288 non-interlaced.
Oh, and for some reason, it initially wouldn't do 640x288 non-interlaced, it only gave me that option after I rebooted a few times. Go figure.