non-TV resolution is a resolution of a computer screen. TVs are different, and depending on model they may be throttling down input from VGA for uhm... marketing reasons.
VGA is able to handle 1080p just fine (you don't notice the difference between VGA, DVI and HDMI), so I think your cable is damaged/old/defective. Cables can screw up things and I fixed quite a few "video issues" by changing the VGA cable.
I notice a substantial drop in image sharpness, still not sure if that is considered normal.
It's not normal.
Can you check that windows is set to run at the right resolution? (right click on an empty spot of the desktop, and select Screen Resolution to access the relevant settings panel) the VGA cable you are using (that lacks pin number 9) prevents the monitor from telling its specs to the computer, so you have to set the resolution manually.
Again, buying a VGA cable with all pins in their place allows the screen to communicate with the computer, and if that was the case Windows 7 will start spamming popups saying "this resolution is not optimal" offering you to set it to the screen's native resolution.