My desktop monitor is dvi, and believe me, the picture looks great at any res. Also "probably fits better" isn't the case, by default any dvi enabled monitor takes whatever res you are actually running, converts it to the native res digitally, and displays it on the screen. My monitor, for example doesn't have any adjustment settings at all (except for color/brightness adjustment). Afaik all dvi screens are like this... the image is handled digitally so there is absolutely no adjustment. I have every resolution available that I would with a traditional crt, unlike a vga lcd where I might have one or two that actually work. You don't want to run mame at the lcd's native res, simply because some of the newer mame games will slow to a crawl at such a hi res. I run mame on my desktop pc at 640x480 for speed issues. I've ran it at native res though and the picture looks identical with all filters turned off.
In the case of lcd displays, you do want a sharper picture because lcd's dot pitch is different and having a blurry lcd won't blend the graphics well like it does with a crt screen.... it'll get blurry AND jagged. You almost have to use filter effects if you wish to get some resemblace to a traditional screen. But honestly it just isn't going to look right regardless of the settings because it is the wrong monitor style.