edit: after looking at some reviews,a lot of them say it dosnt support full 1080p infact its no where near only 540p with upscaling to 1080p(not true 1080p).
ah well, looks like i need a new monitor/tv to enjoy HD with a console...
OK, your monitor has a native resolution of 1920*1080 (1080p), so that's not the issue, on a technical level, it's identical to setting your PC to output 1920*1080 with a 60Hz refresh.
The 360 can output 1080p no problem,
The issue is probably one of these
1. If the HDMI-DVI lead is poor quality, it might struggle to push 1080p down it, the side effects of dodgy HDMI is 'sparklies', on my monitor they are easy to spot, it's a ton of green dots appearing all over the picture. Just get a better quality cable.
2. The game is rendered internally at a lowish resolution (is MW2 even 1280 * 720?), when upscaled to 1080, it will look a bit rubbish compared to a PC natively rendering at 1080p, not a lot you can do, just get used to it I suppose.
3. The 360 is very fussy about the EDID information the monitor supplies it, if you are able to select 1080p in the 360's display menu, then you are OK, if not, it's the same issue my Viewsonic had. Does your monitor in the on screen menu's have anywhere it shows you what resolution it's being inputted? I can't remember off the top of my head if the 360 outputs 1080p at 50Hz or 60Hz.
I'd take HDMI->DVI anyday of the week, it's digital, so assuming correct signal paths/EDID compatibility, it would appear the best interconnect. Using the VGA cable can lead to a soft picture on some monitors as 1920*1080 is right at the extreme of resolutions you can pass down the cable.
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