This article is from the DVD Formats FAQ, by jtfrog@usa.net (Jim Taylor) with numerous contributions by others.
Answer: RTFM. You are watching an anamorphic picture intended for display
only on a widescreen TV. (See 3.5 for technical details). You need to go
into the player's setup menu and tell it you have a standard 4:3 TV, not a
widescreen 16:9 TV. It will then automatically letterbox the picture so you
can see the full width at the proper proportions.
In some cases you can change the aspect ratio as the disc is playing (by
pressing the "aspect" button on the remote control). On most players you
have to stop the disc before you can change aspect. Some discs are labeled
with widescreen on one side and standard on the other. In order to watch
the fullscreen version you must flip the disc over.
See Steve Tannehill's Why Does The Picture Look Squished? article for
further explanation and pictures.
 
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