If you want to keep the lid open but use the external monitor as the primary display, go to the Displays pane in System Preferences, click on Arrangement, and drag the white rectangle from one screen to the other.
Otherwise, see this article, Using an external display with a MacBook, which says:
When your laptop is open, you can't
switch to using the full resolution of
an external monitor. I have no idea
why, but it's a fact of life for
MacBook users. You can use both
displays in "extended" mode, or you
can mirror your MacBook's display
(which most likely doesn't use the
full resolution of your external
monitor), but you can't switch to
using only the external monitor. Very
strange.
If you close your laptop, you can
actually get the full resolution of
your external display. Put your
MacBook to sleep, connect your
external display and an external
monitor, and wake the computer up by
pressing any key. You will have full
use of your external display while
your laptop is closed.
If you really want to have your
MacBook open while only using an
external display, after following the
procedure above, you can open your
MacBook, and its screen will remain
off, which means you can still use the
MacBook's keyboard and trackpad. Why
you can't get into this mode using F7,
I have no idea. This is a good
technique for allowing some heat to
dissipate while still using an
external display so the lid of your
MacBook doesn't melt or warp.
