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With a VGA lead the xbox doesn't have options to display 1080p and 720p and such because it just gives you resolutions to choose from like a computer would. So you need to pit the highest resolution it will allow (on my monitor i have my xbox running at 1680x1050). If your resolution is 1280x1024 it means you haven't selected widescreen in the display options, you're running in 4:3. Select widescreen and there will be many widescreen formats to choose from up to around the 1920x1080 mark.
Oh and old xbox's can do 1080p over component fine. But it doesn't look as good as with HDMI!
Well what will it go upto? Often the VGA resolutions are 16:10 not 16:9 so you won't be able to select exactly 1920x1080 but you should be able to get something similer like 1920x1200 or lower