The laptop's screen has a native max. resolution and you can not crank that up. The video card may be limited to that resolution by the manufacturer, since the screen can not do anything above that. If you can upgrade the video card, you need to make sure the new one will support higher resolutions, and also that the highest one matches the native resolution of the external monitor; otherwise you'll still have distorted text on screen.
It's a bitch; see if there are any external solutions for your setup, like a video adapter through USB. Not highly performant and no gaming on them, but they can up the resolution quite a bit.