depends. Some lcds have the ability to put bars in the place of unfilled space instead of stretching the image to fit. To me, this is preferable to distorting the image. In general. 4:3 lcds will play 1600x1200,1024x768, etc. any res with a 4:3 ratio perfectly, without any distortion or bars. 5:4 lcd's will play 1280x1024, etc without any distortion or bars. I believe the widescreen standard for most if not all current pc monitors is 16:10, that means it will play 1440x900 (19" lcd), 1680x1050 (20-22" lcd), 1920x1200 (24" lcd) and 2560x1600 (30" lcd)
To sum it up I guess, it is ideal to stay in your native res, however, it is not required.