Background picture needs to be resized for VGA landscape (640 px) in the VGA skins in order to display correctly in v.10. The low display of keyboard (half way down bottom bar) is a known issue that Tene is aware of. Note, he does not have a VGA device, so we have to have patience with VGA bug fixes.
Try this thread to get skins that work on v.10. The GOLD standard for VGA skins is TOUCH_VGA by Mr. Grouch. He has updated it for v.10
at the pocketCM phorums. Looks like you are using a pre-v.10 version of Touch_VGA. I dont know why the second picture did not expand the keyboard. Was that v.10?