I am a very big proponent of letting the content creator determine how it is streamed to my 16:9 HDTV. I have adjusted all my devices to stream content in their native mode. If the source is 1080P it shows up on my HDTV as 1080P, if it is 720P it shows up as 720P, and so on. Unfortunately when I view certain theatrical (movies) HD content from Directv or my Blu-Ray player, most of it displays in a letterbox with black lines on the top and bottom.
After extolling the virtues of HDTV and Blu-Ray to my family and friends, I get a lot of questions about this effect since the elimination of letterboxing was one of the features often touted by HDTV proponents. Everyone believes that there must be something wrong with their settings. At the beginning, I thought there that as well, however the issue is not with the setup; it is with the content. Well it is not a problem, it is by design. Most theatrical content is filmed in an aspect ratio of 2.40:1, while the aspect ratio of HDTV is 1.78:1 (commonly referred to as 16:9). To display the 2.40:1 content accurately on a 1.78:1 display, the HDTV is forced to produce bars at the top and bottom.
You would have thought that the HDTV engineers would have taken this into consideration when they settled on the 16:9 ratio, well apparently not, and we are left with viewing theatrical content not filmed in 1.78:1 in a letter box. Yes, we can always use our HDTV or Blu-Ray player functionality to expand the image, but the anamorphic conversion is never perfect. As a consumer, I am less than happy not be able to use all of the 46 inches of my HDTV to view movies as the director intended them to be seen. I think that is a pretty sad commentary on an industry that currently makes most of its income from DVD sales. There is artistic value in the wider aspect ratio, but the question still remains why the HDTV standard did not take that into consideration.
For further information this article from Home Theater magazine is good. If you have the watched the Blu-Ray version Dark Knight and noticed that the screen switched from letter box to full screen (at first I thought there was something wrong with the disc), this article explains why.