That's actually neither a bug nor a settings issue but an intentional feature omission. Screen resizing code is very tricky to get working correctly on Palm (if you look through the 2.0 beta-testing bug report threads you'll see dozens of posts on the subject), it took us a long long long time to get it working reasonably well in 2.0 using the standard Palm programming interface for it, and after going through all of that we decided we couldn't afford to spend the time doing it all over again for the sake of the comparatively-small number of users who still had Clies (which use a different programming interface for screen resizes).
However, I think someone mentioned at one point that there's a hack available that gets some Sony Clies which gets them to use the standard Palm interface for screen resizing instead of Sony's proprietary one, so that might let you use the whole screen - I can't seem to find a post about it in PlecoForums, but perhaps some charitable Clie user could chime in with the name of it?
Absent that, though, about the only suggestion I can offer is that you go back to 1.0 - 1.0 was much better optimized for that generation of Palms in general, we started working on it in 2003 (same year that the UX50 came out) so it was meant to work well on devices from that era, and there were enough people using Clies then to justify spending a lot of time testing / optimizing it for use on them. 2.0 was designed mainly for the 2005-and-later Palms, which use flash memory for internal storage, so its user data storage / file caching / etc systems were optimized around that. (the last Clie model was released in 2004)
