The issue is most likely from the aspect ratio of that resolution.
The user interface of VAM 1 was mostly build for
16 / 9 = 1.777 with some wiggle room.
1280 / 1024 = 1.25 is to far off.
A higher
1600 / 1280 = 1.25 resolution would have the same problem.
To fix that on a monitor with that resolution the goal should be to run at one of these resolution:
1280 / 720 = 1.777
1280 / 768 = 1.666 should be close enough.
Possible workarounds to try:
-launch via
VaM (Config).bat from VAM's root folder in windows mode with 1280x720, simplest, but ugh windowed mode sucks

-in Windows set your monitor resolution to 1280x720 and run VAM at that "native" fullscreen resolution then (not sure it will pick that up as native or use 1280x1024 anyway, worth a try)
-try my old
SallyUISally4K VAM plugin. It's normally intended for user interface scaling on very high resolution monitors. However it can be used it to apply a new VAM-internal render resolution. Basically just a resolution picker inside VAM. Lowest supported is actually 1280x720.
Hope this helps.