Benn, you don't mention what connection type you are using but given you comments I'd say it will be HDMI/DVI, Compoent etc not VGA. As you are probably aware, TV's all use overscan to cut of the ragged edges of traditional Analog broadcasts giving a nicely displayed edge to edge picture. Directors produce their TV/Movie content with this in mind so when playing DVD's etc you should not lose anything "important" (note: some TV's have a bigger overscan than others). The problem with HTPC's of course using a "TV" connection is that it gets hard to see important parts of the desktop (start buttons, menues, etc) as they tend to be in the overscaned areas.
OK - You have a "few" options depending on your connection type:
1) Use VGA - If your TV has a VGA Input you can use this and assign a 1280 x 768 res and it will act just like a big monitor and should be sharp and clear. You will get no overscan but your PC will have to do the scaling to this resolution. Other downside is that you typlically can not feed VGA via your AV Receiver.
2) Use HDMI/DVI/Component etc - Your best setting will be 720p, and the TV will see your HTPC just like it was any other AV Device so Overscan is the default but you could try:
a) Overscan Compensation in Video Drivers - Pending your the made / model and OS you may have the ability to apply Overscan Compensation in your drivers - this effectivly drops the resolution on your PC and still embeds it into your 720p signal. I've found this very problematic on many makes / models (eg nVidia on Vista is tough).
b) Overscan Compensatin in MC12 - You've seen this and it helps with T'View menus only.
c) 1:1 Pixel or "PC" Mode on your TV - Your TV may allow you to set an option on how to treat the incoming signal and effectivly change the mapping it uses (eg mine does). This is the best option but you will have it or you won't. FULL is not the correct setting (it will have Overscan), try looking for PC or 1:1. The downside is that you may need to change back to FULL for other inputs unless your TV has an intelligent mode
Good luck (you will need it)
Nathan