I have recreated the project, restarted Visual Studio, Googled thoroughly, and am stuck.
Please can someone help?
The setting you're adjusting is for the default skin for the emulator. It has nothing to do with the Form Designer (which you show in the last screen shot). As far as I know, if your target type is set to "Windows CE" (as opposed to WinMo) when you add a new Form to the project, then you always get one that is 640x480. This is similar to desktop projects where you always get the same sized Form when you create a new one. You simply have to change it's size after you've added it to the project.
Setting WindowState to Maximised will magically resize the form to the dimensions specified by the selected FormFactor.