We no longer list the exact resolutions in xorg.conf in general. Try
moving aside your xorg.conf and running - it should pick up the 320x240
resolution and permit its use. (If it doesn't, _that_ is a bug.)
** Changed in: xorg (Ubuntu)
Status: Confirmed => Won't Fix
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320x240 screen mode not supported
https://bugs.launchpad.net/bugs/183913
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