Just as I thought that Mac was having it perfect in the area of screen resolution and detection, suddenly my MacBook Pro started to display a slightly zoommed-up screeen where I needed to bring the mouse to the edges of the screen to move it a bit and see the rest of the display.
Tried with the regular screen resolution tool in System Preferences but to no avail.
After looking in Internet for a solution I came across this solution which I feel is worth noting here in this blog. Thanks to the author (gingy22) which wrote it for MAC OS X Leopard but is applicable to Snow leopard as well.
Original Link: https://discussions.apple.com/message/8912034#8912034

Here is the extract:

First, try to reboot in safe mode.
– To do that, turn your system off, then restart.
– When you hear the startup tone, hold down the shift key.
– Release the shift key when you see the “spinning gear” on the startup screen.

The file named Library/Preferences/com.apple.windowserver.plist contains the resolution that the System tries to use at startup. Deleting this file helps generally.
If this solves the problem during the reboot, but not in your user account, a similar file named “com.apple.windowserver.XXXXX.plist” exists in your own /Users/<yourname>/Library/Preferences/ByHost folder. You can remove this file to get back the standard resolution in your user account.

If nothing above works, try to press the “reset” or “factory defaults” button in SwitchResX Control for your monitor(Separate proprietary Panel tool). This will delete all changes that you have made for this monitor.

As a last resort, if you can’t even start SwitchResX itself, you’ll have to delete the monitor profile that you modified when you created a new custom resolution.
This file is located in /System/Library/Displays/Overrides/ and is the last modified file, that you can find if you sort by date. You should remove this file. You can access the file system, either by:
1) accessing the file system from an other Mac on the network, from ssh or by mounting a shared folders.
2) OR starting up in single user mode (or safe mode)
3) OR at last resort: reinstalling the OS above the existing install, which will keep your existing profiles, but remove the system modified files.

Happy computing again.