Even tough I'm a total newbie to Linux I know this isn't right. My problem is very complicated (at least, I think so :s ) so try to stay with me.

First, It troubled me that there weren't any resolutions available over 800*600. My monitor and graphics card both support 1640*1050 (22" + NVIDIA 9800GT) so that's not the problem. I thought it might be the driver, but it appeared to have the latest driver installed. It was not activated however. When I turned it on it said the computer needed to restart in order for it to take effect, so I did (takes AGES somehow). And when I check, it's disabled again.

When I go to System -> Preferences -> display it says
"It appears that your graphics driver does not support the necessary extensions to use this tool. Do you want to use your graphics driver vendor's tool instead?"

And when I click yes it says
"You do not appear to be using the NVIDIA X driver. Please edit your X configuration file (just run `nvidia-xconfig` as root), and restart the X server."

However, I can't run nvidia-xconfig even though I'm root. And when I try to use the chmod command it returns "chmod: changing permissions of `/etc/X11': Operation not permitted"

So can someone tell me what the hell is going on and how to fix this? If you can help me that would be great. If you can't thanks for going trough the trouble of reading all this ^.^'

PS:
Almost forgot to mention my Linux version >.<
Ubuntu 9.04 on a live USB stick.

Are you logged in as root or a user? the commands you have mentioned require root permissions to run. Before doing the nvidia-xconfig command try using su first and login in as root, alternatively if sudo is set-up you can also try "sudo nvidia-xconfig", however that does require that sudo is set-up to allow this for the user.

You did a pretty good job of describing your problem, the actions that you took to resolve the problem, and the results. Most people don't do as well writing posts. I just have a few questions.

What exactly did you do to 'activate' the graphic driver? Is it the same thing that you describe in the following paragraph?
Is this the procedure that you talked about in the previous paragraph?
Exactly how did you attempt to run nvidia-xconfig? Was it in a terminal window? If it was in a terminal window what did it say? Copy and paste the attempt to execute this utility. Here is what happens when I attempt to run nvidia-xconfig, which isn't installed on my computer.
What exactly is the error when you use chmod? Try performing an ls -lh on the nvidia-xconfig file and then changing the permissions on it. Copy and paste that here as well. Here is an example of me changing the permissions on my $HOME/.bashrc.
That is helpful. When I started reading your post I would have quessed that you were using Fedora Core because of the 800x600 resolution.

By activating the driver I mean going to system -> administration -> hardware drivers and double clicking on the driver available.

When trying to run nvidia-xconfig in the terminal it returns this message:
And I don't really get what you meant with all those commands. I don't really understand the terminal so can you tell me exactly what to enter in it?
When I enter "chmod 777 /etc/X11/xorg.conf" in the terminal it return the following:
Could you tell me what exactly to enter in the console to try and fix this?

It basically comes down to not having the authority to do anything, while I am in fact logged in as root. If you can help me solve this problem I will be very thanksfull.

Okay you are doing fine. I have one more question. How exactly did you log in as root? I ask that because Ubuntu does not allow root logins by default so this is an important point.

I am currently thinking that you have not logged in as root so you don't have the required privileges to make the changes that you intend to make.

Usually in Ubuntu you use the sudo command in front of commands that require root privileges as in this example.
However there are usually applications that provide 'Administrator Mode' in order to perform system configuration without having to log on as root.

So please explain exactly how you log on as root.

Well, after I booted ubuntu for the first time, I already was. I never changed anything with the permissions, and when I first logged in my Nickname was root, my real name was root, my group was root and my permission group was root. Everything indicates that I am in fact root, except for the actual permissions. I'm guessing I'm not really logged in as root then.
How do I make sure I am logged in as root?

The philosophy behind Ubuntu is that you will never log in as root.

Now that I take a closer look at reply #4 I see that your prompt is ubuntu@ubuntu. That should mean that your computer is named ubuntu and your user account is named ubuntu.

Try the example that I showed you in reply #5. Open a terminal window and enter the following command.

Thanks, I tried what you said, but it returned another error.
Now that I think about it, there's something strange about my xorg.conf
When I google it and see the xorg.conf of otherpeople it has much more information then mine.

Here's what my xorg.conf sais:
There seem to be lines missing. As the terminal also indicates. I tried to add lines from what I saw on the internet but it doesn't let me save changes to it.

If you think that you are knowledgeable enough to edit the xorg.conf file then use this command.
The driver line should look like this.
On the other hand you could be creating more problems for yourself.

In any case once you have entered the missing line then run sudo nvidia-xconfig again.

Thanks! It's running like a charm now