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Never use the "Stretch" setting. It will distort your image, making people look thinner or landscapes look squashed.
High-quality sites like WallpaperAccess allow you to filter specifically by this resolution so you don't have to guess if it will fit. 1280x768 wallpaper, HD desktop background">
If you find a stunning 1080p (1920x1080) image you love, use the "Fill" or "Crop to Fit" setting in your Windows Personalization menu. Since 1080p is 16:9 and you are 5:3, a tiny bit of the sides will be trimmed, but the image will stay crisp. Never use the "Stretch" setting