If the TV has VGA input, it should have a 3.5mm jack for audio as well.
VGA really is your best way to go on those. I have an old 46" 720p (768 rather) Sony LCD in the bedroom, and when I hook a machine to it, its pretty much the only way as well due to the same issues as you. While digital->digital is better technically speaking in the most general terms, the VGA connection will exceed that for video simply due to the resolution conversions. VGA will have no problem with the native 1366x768 resolution, and the computer will have no problem converting video to that res from it's native res. HDMI on the other hand.....even if your underscan/overscan control worked so that you could stretch 720p to fit the screen, or shrink 1080p to fit on the screen, it's still attempting to display that same number of pixels to the unmatched number of your TV....then in addition to that, this is on top of the conversion from the video source to what you have it set to output. End result is not favorable. The computer will do a much better job simply doing one conversion of the video source to 1366x768 then outputting it natively to your screen. In the case of MCE + cablecard tuner if you are using such setup, there are 2 ways around the DCA/HDCP check if you use VGA. 1) you can simply do a registry tweak to bypass that step of the setup, or 2) run the DCA tool via HDMI, then once it's happy, then switch to the vga connection. The DCA tool is a 1 time deal during setup, so once it's done, that's it. Not like you have to keep tricking the machine every reboot or something.