That happened to me on my normal PC and I figured it out.  You have to manually edit the mugen.cfg file (in the data folder) to whatever resolution you desire.  640 x 480 worked best for me, but you can try others that are supported by your cab.
[Video Win]
 ;Enter the width and height of the resolution you want to set here.
 ;The optimal resolution is 320x240, but if your video card has problems
 ;You may want to try 640x480.
Width  = 640
Height = 480
 ;This is the color depth at which to run MUGEN. You should set it to
 ;16 bit color unless your video card has problems with it.
 ;16-fastest, 24,32-slower, 8-slowest/worst
Depth = 16
 ;Set this parameter to 0 to disable screen stretching, and set it to 1 if
 ;you want to scale it up to fit the current resolution.
Stretch = 1
 ;Set this parameter to use a resolution-doubling filter. You will
 ;need a fast machine to use these filters. You will need to increase
 ;the screen resolution to at least 640x480 for these modes.
 ;0 - off
 ;1 - diagonal edge detection
 ;2 - bilinear filtering
 ;3 - horizontal scanlines
DoubleRes = 2
 ;DirectX mode
 ;Choose from Hardware, Software, Windowed, Overlay, Safe and None
 ;Hardware and Software run in full-screen. Windowed and Overlay
 ;run in a window. The windowed modes require you to set Depth to
 ;whatever color depth you are using for you desktop. The best results
 ;are when you run in 16-bit color. There is no advantage to running
 ;in 32-bit color. If Hardware, Software and Windowed fail, try Safe.
 ;None uses GDI to draw, so it's very slow. Use None only if
 ;you cannot get anything else to work.
 ;Overlay is not supported by all video cards, but can be faster than
 ;Windowed if it works.
DXmode = hardware
~ DeLuSioNaL