Oz
Can you send a screen shot of the catalyst control window in both states - before output 2 full screen - and - after output 2 full screen.
You also need to ensure that output 2 is not being 'forced' to 1024x68 - see screen shot below
Is this an Analogue or Digital TH2G?
Have you installed the matrox PowerDesk utility?
Have you set the resolution in the MacOS (system preferences) first before opening catalyst?
You need to ensure that the resolution and refresh rate is set in system preferences BEFORE opening catlayst. Certain resoltions can be 'forced' at startup - however TH2G resolutions are not included.
Depending whether you have 25fps(75Hz) or 30fps(60Hz) selected - you may see the screens flicker as catalyst sets the refresh rate at startup. TH2G-A will support 75Hz by default. TH2G-D will support 60Hz by default, other resolutions require installation of Matrox PowerDesk utility to re-configure the TH2G-D via USB. Stick with default values unless you really need to change it. If using the Power Desk utility, you seem to need to do it twice!...
Simon