All widescreen DVDs are encoded at 720×576 pixels (for PAL). You need to encode from an anamorphic video, and then you must flag it as being 16×9 in the encoder. If that is done, the DVD player will scale the picture content correctly for letterbox or full frame on a 4×3 display; or it will display full frame on a 16×9 screen (provided that the setting for display type is set correctly in the DVD player).
You can create a DVD using a letterboxed master (again encoding at 720×576); however you will alienate the viewers with 16×9 displays, as the video will appear with a large black border around all four sides of the picture.
Bill Stephan
Senior Editor/DVD Author
USA Studios
New York City