I've got the same problem but I don't really mind. On win Vista it just stretched it but on win 7 it leaves those blank borders. Only way to fix I believe it to change your screen resolution and 640x480 must be the appropriate for that game.
Do you have nvidia graphics card?
First update your drivers and if still be the same problem.
Go to Nvidia control panel, find options refer to scalin and mark "Use Nvidia scaling"