Yeah... If you have a lot of video files that are displaying with the wrong pixel aspect ratio when it's set to "source", then they're really not being encoded properly. Video files should be encoded with the proper pixel aspect ratio for maximum quality. Where are these files coming from? I have a handful that I didn't encode myself that were done improperly and don't display right, but not that many. Mostly the ones that I see that are bad are encoded at 720x480 with square pixels (which isn't ever right) and should be either 720x540/square or 720x480/0.9PAR (D1). They forget to take into account that video typically has rectangular pixels and and just encode them as square (which makes them look weird and stretched "wider"). I also sometimes see video messed up due to Anamorphic DVDs.
People who are novices at video formatting and encoding often really don't understand what an "anamorphic" DVD is, so maybe I should explain...
As you're likely fully aware, video displays create pictures by "scanning" video lines onto the screen. The more horizontal lines used, the higher the resolution. Standard NTSC Standard Definiton format video is is made up of 525 lines, though some of this is used for "subpicture data" and control information (tracking information, subtitles, alternate audio tracks, and stuff like that), so generally only 468 of those lines are visible on the screen (480 for DV formatted footage). Each of those scan lines is made up of 720 pixels, so we end up with a "resolution" of roughly 720x480. When taken into account with the fact that the pixels are not square but rectangular, this gives us the standard 4x3 Display Aspect Ratio (screen shape).
That's all fine and good for source material that was originally shot and edited for use on a 4x3 screen, but when you are repurposing footage originally intended for use on a wide screen in a movie theater (generally either 1.85:1 or 2.35:1 DAR) you have essentially two choices, both nearly equally bad:
1) Chop the video. This is called Pan & Scan. Pan & scan is basically moving a 4x3 window back and forth across the wider film frame to capture the action. This is terrible for a couple of reasons. First off, it changes the aesthetic of the original movie. However, what's worse is that it frequently cuts out important parts of the movie if things are happening on opposite sides of the video frame (you have to choose where to put the smaller box). 43% of the picture is off-screen at all times with this method! If you've ever watched the original Indiana Jones in Pan & Scan (and you know the original movie at all) you'll know what I mean here!
2) Letterboxing. This is what was generally used with old laserdiscs, and some high-quality VHS copies of movies. I'm sure you know what I mean -- it adds the black bars to the top and bottom of the image. Good because you can now see all the action, but bad because your essentially wasting almost 1/2 of those 468 horizontal scan lines on black bars! This drastically reduces the visual resolution of the image that is on the screen, because all the content is actually only (roughly) 720x272 resolution now, with the rest wasted on blank black bars!
So, when the DVD specification was being designed, the engineers came up with a third (and much better) option -- Anamorphic! This essentially takes the full widescreen image and squishes the sides of the image together into the 720x486 box. This makes everyone on screen look very tall and skinny, but it allows you to encode at the full possible NTSC resolution that can be stored! What the DVD consortium did then to address the tall and skinny issue was provided a "flag" in the video stream that the DVD player would recognize that says "this video is supposed to be 2.35:1, or 1.85:1, or whatever other weird widescreen format it might be in Japan and the
DVD player fixes it during playback by adding the black bars in. This allows you to still see the full frame of the video, but (even though the elements are smaller on screen) the resolution of those elements remains 486 lines high so the resolution isn't terrible. That's why after DVDs came out, the TV manufacturers started putting out the so-called "enhanced Standard Def" format TVs, that provided more lines of resolution than the NTSC spec called for (usually 570-620 lines)! Those TVs really look no better with regular TV content, but with Anamorphic DVDs, they can more accurately display those full 480-some lines!
So, what happens with some "badly ripped" videos is that the encoder fails to "listen" to this flag when it's ripping the content off of the disc! If it doesn't listen, and you don't fix it manually in the encoding software, you'll end up with encodes that show up stretched on the display (tall and skinny). The best solution if this is happening to your own encodes a lot is to use a newer/better encoding package that knows how to really encode the video properly. If you describe in more detail what exactly you're doing to make the videos, I might be able to help (if I happen to know the package). MC has the Aspect Ratio tools so that you can force content that was encoded improperly to display right, but it would really be best to stop making bad files in the first place!
In a perfect world, instead of the "hack" of Anamorphic DVDs, they would have simply changed the standard to offer a true widescreen format. And they did! It's called 720p/1080p HD, which is 16x9 native! Of course, 16x9 isn't even perfect because 16 divided by 9 is still only 1.7778 and the "real" format is generally 1.85:1 (and some movies also use the ultra-wide 2.35:1 format -- which is why sometimes the black bars are wider than others on a 4x3 screen and why sometimes you still get black bars on a widescreen TV). Alas, the world was no where near ready to throw out all their TVs back when the DVD standard was designed, and the TV manufacturers weren't ready to build and sell new widescreen ones for cheap enough prices for people to actually buy them!