The game runs fixed at 1024x768 resolution. This can be seen by viewing its registry entries in Windows. Changing the values does not work as they will revert.

The aspect ratio options in-game are only something that you really can use if your monitor stretches the graphics to fullscreen with the standard 4:3 option. If you have black bars on the sides it looks like it should!

If you really want to use the 16:9/16:10 option anyway you can, but there's no real reason to do that (except that the ingame videos, which are widescreen, will loose the black bars at the bottom and top). What you need to do to use these options without squishing the graphics (if you already have black bars on the sides with 4:3) is to change your graphics driver to scale differently.

Here's some copypasta from another Steam forum, user FetusZero:

NVIDIA:
NVIDIA Control Panel > Display > Adjust desktop size and position
Set scaling mode to Aspect Ratio (OP's note: I actually had to choose "fullscreen" here), and make sure Perform Scaling On: is set to GPU.

On ATI Cards:
Catalyst Control Center > My Digital Flat-Panels > Properties
Under Image Scaling, select Enable GPU Scaling, and mark "Maintain Aspect Ratio".

I hope this will help someone out there. Keep in mind that this game is 4:3 and you won't get widescreen gameplay no matter what you do (unless you want stretched fat people running around screaming for cake).