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You system in fact features the first generation of video controllers, called Intel® HD Graphics, which do not have the same processing and performance capabilities of the second generation. The specifications for your processor and graphics controller integrated are available here:
Concerning using higher video resolutions, the best experience that you can get using 1080p or 1080i is using a HDMI or DVI interface. For higher resolutions you should look for a system with Displayport.
For improved 3D processing you should look for a system based on Intel® HD Graphics 3000.
Updating the integrated video controller to use Intel® HD Graphics 2000 or 3000 will not be possible since they are integrated on different processors that cannot be physically installed into your system. In this case I suggest you to check with your laptop manufacturer to see what options do you have to upgrade your system.