You want to use a lower res if your graphics card can't run the game you want at the native res.
An LCD can look "good" on a lower setting than the native, but only one that is divisible with the native leaving no res (ie 640*512 for a 1280*1024)... At least this is true on most LCD's... There are some screens that will handle non-native res' better than most others, but I have no idea why....
As for if 1280*1024 is enough, try it... You have a 19", and the size will be comparable (though your current CRT will be a bit smaller in screen realestate)...
BTW: When it comes to response time, make sure that the LCD is ISO certified. That means that there are certain requirements on how to meassure the response time (amongst others)... If it isn't then that time could very well be just white to black instead of white to black to white.
Lastly, if you have the chance, go to a store and try the monitor before you buy it. That way you can see if you really do like what you see, or if it isn't quite suited to your needs. Remember, all LCD's are
not created equal...
Oh, and you should get on with a DVI in, not just VGA...
Good luck