That's the limitation of LCD monitors. The best quality is at native resolution. At less than native resolution the LCD monitor interpolates (estimates) where the pixels should be placed on the screen. This causes a reduction in graphics quality.
This is true for just about all LCD monitors. That's why some people look for LCD monitors with the ability to do "1:1 pixel mapping" (sometimes called aspect ratio). That setting means the LCD will only use the exact number of pixels to display on the screen. The will cause black borders to appear around the viewable area.
The following is an example of what 1:1 pixel mapping will look like when playing a game at a resolution of 640x480 on a 24" LCD monitor: