Same problem here, using a 3870-X2 card. I was using the scaling to retain aspect ratio under Vista 64-bit for a game not designed for wide screens.. Yesterday I upgraded to Windows 7, installed the latest Catalyst, and find that I can no longer access that feature in Catalyst. I don't know whether to blame Windows 7 or Catalyst, but suspect it's the latter. I've asked ATI for a solution, but don't suppose they will provide one.
(later) I saw the suggestion above about changing to a lower resolution, so tried 800sx600 and that made no difference. So the question remains: is it Windows, or is it Catalyst? If I get an answer from ATI/AMD, I'll update with any info.