I use a fixed width set to 800px.
This has nothing to do with what size screens most people have. It's simply a comfortable width. A variable width site may make sense for certain uses, especially where the middle of the site can use more space for showing images or lots of text and where both left and right sideboxes are in use, but in my sites I don't use the right column, so the middle content area has enough room.
I assume people with larger screens and a wide default browser window are used to seeing narrow sites floating in the middle of their browsers. Or they do as I do and set the browser window to about 1000px wide so they can see other windows in other applications simultaneously.
One thing I don't do is assume that people who visit my sites to buy greeting cards are seeing what I see. I have a powerful development machine, with a large high-res monitor. Most home users don't have machines like this. So I test in a variety of browsers, in Mac OS X and Win XP, and at various screen sizes (using the Resize Window tool in Firefox). That's only wise.
Rob