Sorry for the late reply.
I've been setting up Fusion for my bartop cab, and have seen issues with it. If I launch Fusion from the directory I was planning to use (E:\Arcade\MegaDrive\fusion.exe), it won't start in fullscreen. Any attempt to force it gives an error message that the screen mode can't be set. I tried setting the fullscreen toggle in the ini file, but that just gets toggled back again.
However.... if I rename the directory to MD (so launch if from E:\Arcade\MD\fusion.exe), it works as expected. I can't see any reason for this, but it's made me a little wary of Fusion overall. As you're also having odd issues with video modes, it might be worth moving the executable to a different folder. I don't know if it's just an oddity, or some issue with the path length, but it might be worth a try.