I might be the only person on the planet running a WDTV Live on a 4:3 CRT television but there you go
Anyway, there is a bug in the current firmware that no matter whether you choose Widescreen or Normal, any widescreen video plays on the television in a filled or zoomed mode. ie. not in letterbox format.
Hope they fix that in the next release (along with the Windows 7 networking issues)
Greetings from Australia!