Windows 7 is detecting a non-existent 2nd monitor
Choose main display. Ensure it is "1"
Choose "Show Desktop Only on 1" from drop-down. (hit "Apply")
Choose errant display (which is now grey, not blue) Choose "Remove this Display"
This may well be a hardware issue.
The presence of a "non-PNP" VGA monitor is detected by just sensing electrical load on the RGB/HV outputs, so a faulty driver chip or short-circuited board can cause misdetection.
If this is the case, having the video card replaced will fix the problem.
In device manager uninstall all the monitors in there and uninstall the video card, reboot the machine. Reinstall drivers if applicable (I didn't have to when I had this problem). I remember what a pain it was when I was having this issue.. it took me a while to figure out it was the second "ghost" monitor. I wonder if it is only affects people running windows 7? I have not seen this on XP.