The game loads surrounded by a black border, while alt-enter shifts the game into windowed mode. No resolution change in the setup changes this fact, except one setting 1280x960, which caused graphical glitches. Besides that, I'm not a huge fan of high res on old games, making characters and objects look way to small. I would prefer to play it on a much lower res. but have it also fill the entire screen. Thanks.

The game doesn't natively support widescreen resolutions that could fit modern monitors without borders. You should download Widescreen Mod http://www.gibberlings3.net/widescreen/ it will allow you to select desired resolution, of course including widescreen. It doesn't have to be modern high res, in fact you can still play in pretty low res.

Other method would be changing the scaling option, either in you graphic driver or in the monitor's on-screen options, but doing so, while filling whole screen, will cause distortion.

Note that your save games with Widescreen mod are not compatible without it. In fact, you have to make sure you play the whole game through in the same resolution.

I tried WS mod and don't like it. I'd recommend having the black bars or stretching (I stretch mine). A Function+F# key will likely stretch it for you.

Note: Another alternative is to buy Baldur's Gate: Enhanced Edition. I don't have it, the graphics look muddy and I hear it doesn't add much. But it does natively support widescreen monitors.

P.S. Widescreen mod does make everything tiny, which is what you don't want (as you said above). Enhanced Edition lets you use your middle mouse button to zoom in and out to get it to the size you want.

Widescreen mods allows to select any resolution that is equal or larger than 800x600 and supported by graphic card/driver/monitor. Yes, it will make things on screen smaller, but they shouldn't be THAT small. 1024x576 or 1280x720 should be fine.

Of course, the OP needs to try it on his own and decide.