I would also very much like this resolved. It would make the 800x480 resolution 
on my asus eee much more usable.
I believe this is the upstream bug report: 
https://bugs.freedesktop.org/show_bug.cgi?id=39949
The problem can be solved by reverting the patch from:
https://bugs.freedesktop.org/show_bug.cgi?id=40063
Is anyone willing to build a patched xorg?

** Bug watch added: freedesktop.org Bugzilla #39949
   https://bugs.freedesktop.org/show_bug.cgi?id=39949

** Bug watch added: freedesktop.org Bugzilla #40063
   https://bugs.freedesktop.org/show_bug.cgi?id=40063

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https://bugs.launchpad.net/bugs/883319

Title:
  xrandr --scale 1.2x1.2 restricts area in which mouse moves

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