Well guys it seems your settings are correct. I know that if you want to preserve the aspect ratio for a 16:9 video your best best is choosing 320:176 with the aspect ratio of 16:9. I just converted The Dark Knight with it and it runs flawlessly. Note that the video it's self didn't have black bars and was 628:254.
The settings were:
Mp4
H.264/AVC (same thing as H.264)
AAC LC (same thing as AAC)
320:176 resolution
16:9 aspect ratio
384 video bitrate
44100 sampling frequency
2 Channels
128 kbps audio bitrate
This only works if the video has no black bars and is already in widescreen format.
It seems you have the regular settings correct for a full screen video
Mp4
H.264/AVC
AAC LC
320:240 resolution
4:3 aspect ration
384 video bitrate
44100 Sampling frequency
2 Channels
128 kbps audio bitrate
All stretch it does is if you choose a smaller video than the resolution you have. It will stretch it to fill the resolution you set it for.
Your problem, probably, is that you do not have you H.264 profile set correctly.
a couple of check boxes below where you will find the stretch it box there is a h.264 profile check box click it and look at those settings.
they should be
h.264 profile=Baseline(CABAC off)
H.264 levels=1.2
this could be throwing it off because h.264 is very picky with having all your settings correct.
If you guys are still checking these forums give those settings a try to see if that is the problem.
EDIT:BLACK BAR REMOVAL SOLUTION!!!!!
The way I found that was easy to remedy this is to set your video for the normal 320:240 settings listed above.
Then click the Crop/pad check box.
This will let you stretch the video to fullscreen. The default settings should work that crop 32 pixels off the top and 32 pixels off the bottom, making the video fullscreen. Make sure you check the Crop On box, then encode the video. I have tested it on my widescreen videos and they are fullscreen with this option. obviously depending on how big your black bars are you can tweek the pixel count, but this should remedy your widescreen to fullscreen problems.
That is the easiest way to do it all in this program.
Cheers!