Well, a lot of regular video cards support more resolution than 1680x1050. The problem is the monitor. If the monitor doesn't support it, it's over for you.
But like you said, you have a monitor that supports that resolution. Regarding the video card, its video memory doesn't make a point on what is the maximum resolution you can use. Read the specs of the video card and you'll find the max resolution capability somewhere.
The game is NOT locked to 1280x1024 although the in game menu may list that as the max resolution. Just edit the renderer_settings.xml file and put in your higher res and it should work. The game looks glorious at 1600x1200!
*Edit* I just noticed I have not posted here in three and a half years. Um, hi everyone!