There is a setting in the display preferences that you have to uncheck, I think something about overscan, or oversize, this should bring the whole screen into view, but with a small amount of black around the edges. also, you can either set the display parameter for 'mirror' with a check, and the desktop will look the same on both monitors, or you can go to arrange, and on one of the screens in that window, there will be a little white or grey bar over it, this determines which is the master window, just drag the bar to the other one and it will change.
If you want the screen to fit properly, and your 26" display has a VGA port, then use the DVI - VGA adaptor and a VGA cable. I do this with my 46" LCD TV, works great. When I use the DVI - HDMI, I get the same issue you describe.
Brian