I've got my B&W G3 (G4) hooked up to my LCD TV as a streaming media center, probably like y'all do, and I had to go into my TV's setup menu and turn OFF the zoom function that's enabled for "regular" NTSC/cable TV. I've got a Visio 42"/1080p, and the path to the "zoom" function is Menu->Setup->Widescreen->Normal/Zoom1/Zoom2/Panoramic. "Normal" is the setting to use with your computer. Your video card should detect the proper native resolution. I've got an old Radeon 7000 Mac Edition, and it handles the TV just fine.
I have been bugged by this - I think settings on the TV are the key. I know the following setup is not the same as yours, but it may be of some use.
For one TV I had access to I found a setting that said: 1:1 pixel. Activating this gave a non-distorted image with all top menu and dock.
I was using a MacBook Pro (DVI to DVI cable), and a new Mac Mini ([mini DVI to DVI adapter] - to - [DVI-HDMI adapter] - to - HDMI cable - to - [HDMI to DVI adapter]. When I connected this via a [DVI to VGA adapter] this setting was greyed out, and I could not get the menus correct.
The TV was a 50" Panasonic Plasma. I am calling on someone with a TV with HDMI tonight - I will try DVI to HDMI, and report back.
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