I am also thinking it could be the N800 software. My converted 16:9 movies look fine on my PC but the same file is stretched vertically to fill the whole screen on the N800 when using Media Player or Canola. (not tried Mplayer)

however, I do still have one movies that I converted with 1.41 (? maybe) that shows in letterbox format on my N800). So, I am not sure what that means.