Solution taken from: http://linuxfud.wordpress.com/2006/08/13/gdm-login-screen-resolution-too-big-to-fit-screen-try-this/
When I upgrade my Gutsy into Hardy, my login screen went crazy. It’s resolution changed so it seems like cropped from the monitor. Dunno what’s went wrong since I never changed the xorg.conf file. This is one solution that you might find handy.
sudo gedit /etc/X11/xorg.conf
Choose the resolution you want for the login (say, 1280 x 1024)
edit your xorg.conf file.
In the Section “Screen”, SubSection “Display”, you have two entries:
Modes and Virtual.
For the login, X will default to the first resolution defined in the “mode” entry. Thus, you must select the resolution you want (say, “1280×1024@60?) and move it at the first position.
Next, the “Virtual” entry is used to have a larger desktop resolution than screen resolution (you can reach the zones “outside the screen” by moving your mouser pointer to the edges). Your Virtual section should have the same size you want for the login resolution (say 1280 1024).
Well on my case, apparantly the “Virtual” section was missing from my xorg.conf . After a little fix, my login screen was smooth as ever 
