720×480 menus and video have non-square pixels.
Encore’s not changing the dimensions (or pixel aspect ratio) of anything – it’s doing pixel aspect ratio correction in Encore so that it looks in Encore as it will look when you view the DVD on a television. If Encore didn’t do this correction, everything would look distorted.
If you want to see the menu without pixel aspect ratio correction (for whatever reasons you might have), you can do that with the PAR button on the bottom of the menu editor, which switches between corrected and not corrected.