In my case it works :
The game starts windowed, and turning it Full screen works nicely too. The 1280x1024 option is then bolded and I can't change to any other display setting back (the second 1280x1024 option is still disabled, but is unavailable when in Windowed mode).
Note : my original "prefs.prop" is 1161 bytes long, and yours is 1346. I attached my prefs.prop file for you to look into it.
Chords of Steel : make sure it's not the demo : we're talking about episode 1 here.
There's still some anti-aliasing needed : look at the title in the following screenshot, when it's moving the aliasing parts are moving too, so it makes a very ugly effect ! http://nantes.mwyann.com/WG1.png