If you're not confident editing the registry you can also use: https://dl.dropbox.com/u/31272729/Wides ... editor.rar
It's a options util made by Lee from schthack. I've just edited the res file to show normal resolutions.

The sega options util doesn't appear to support windows 8 very well and generally unable to detect what resolutions your video card can support. You might also want to try running psobb.exe in compatibility mode.