Monitors come in many different shapes and sizes, so no single image resolution will look good on all systems. But there are a couple things you can try if your desktop background looks stretched or fuzzy on your monitor.
Adjust Background Position
In Windows Vista or Windows 7, you can try the following. Minimize any open windows and programs, and right click your desktop. Click "Personalize". Then in the Personalization window, click "Desktop Background". The Desktop Background window will display your current background and all associated settings. At the bottom of this window, you can select the "picture position". Setting the position to "fill" or "center" will display the image at it's original aspect ratio (i.e. unstretched).
Change Your Screen Resolution
Many computer users don't have their screen resolution running at an optimal setting. To improve the overall image quality of your screen, make sure you set your screen to the operating system "recommended" resolution. Minimize those programs again (shortcut key - Windows Key + D), and right click your desktop. In Windows Vista, click "Personalize", then "Display Settings". In Windows 7, you can just click "Screen Resolution" from your desktop. Generally, you want the highest resolution available. In Vista, move the resolution slider all the way to the right. In Windows 7, select the "recommended" resolution from the drop down box. Click apply, and your new setting will be saved.