I'm on Workstation 16.1 and Windows 10 Pro 20H2 as host.
I've installed a VM with Lubuntu 64bit and installed the Open VM tools.
When I open the VM in full screen all works as expected, with screen in high resolution.
But when the VM is windowed the screen resolution goes down to 800x600 (and the stretch mode is not the solution).
When I'm running another VM with Windows 10 as guest, the screen is always at the maximum resolution, also when windowed.
Thank you for attention.