At long last, it appears that AMD/ATI
support Aspect Scaling, with 8.3 coming out a couple of days ago. Quote Anandtech:
Digital Panel GPU image scaling: The option to enable image scaling for maintaining aspect ratio of a display has been added. Additionally, the GPU itself is now used to scale the image if the check box is ticked. NVIDIA has had this for a while and it's good to see AMD adding support for this.
So it appears that it only works with DVI, but this is an excelent move by AMD, and about damn time too!
I've installed the new Catalyst drivers, and I can say that it works excelent with my X1800XL =] Though, it appears that 1280x1024 doesn't work quite well (issues with 5:4?), all other 4:3 resolutions work well. 1:1 (i.e. centered timings) still appears to not work correctly.