You need to specify the "Virtual" option in xorg.conf to set the max
total screen size to something larger. The Screen Resolution tool in
GNOME can do this for you automatically or you can edit xorg.conf
yourself.
The issue of having to set Virtual at all is a known issue already
reported and tracked elsewhere.
** Changed in: xserver-xorg-video-ati (Ubuntu)
Status: New => Invalid
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Attempting to do dual-head with ATI Mobility Radeon 7500 can't go above 640x480
https://bugs.launchpad.net/bugs/282648
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