Isn't this just one of the basic problems of having a 16:9 screen in a world that's still largely 4:3?
I'm still waiting to be eligible for the new MTS HD hook-up (grrr) but it's really a matter of personal preference how to deal with SD signals. If you have a plasma (like me) those black bars make you crazy, because they burn into your screen and give you image retention, so I'm always stretching or zooming the SD image to avoid the bars. But on my LCD set, I don't worry so much.
I'm curious as to how the new MTS set-up deals with is. I've assumed that the HDMI connection would make this process more automatic. Can you customize it at all?