Having the screen get resized fine for occasions where you want to lessen the screen real-estate of a VM but still keep an eye want is going on. The problem is once you try drag the window back to it's 1:1 size. With a free hand you won't be able to get the window size exactly back to a 1:1 ratio so the everything in the VM will look slightly blurry.
Here's an example of my trying to get this 1152 x 864 Windows XP KVM back to actual screen resolution. It's close but still blurry.
I've lived with this blurriness for months now but today I came across Al Dimond's post about the problem. He took the time to investigate the problem and found a quick workaround using xdotool to resize the KVM window to a width and height one pixel less than the guest.
First get the window ID of your KVM
xdotool search --title QEMU
Then use the windowsize option to set the window to an exact size. The window ID in my example is 90177539.
xdotool windowsize 90177539 1151 863
Following the one pixel less workaround, you would use this command for a 1024x768 guest.
xdotool windowsize 90177539 1023 767
Now the guest screen is sharp and crisp again.