feoren: I have this same problem and I've never used any mods. The game used to stretch to my whole screen, but now it uses a black border to maintain 4:3. I much prefer it taking up the whole screen.
PetrusOctavianus: Why?
The stretched image looks terrible. I made custom mods out of the Heroes Chronicles, so I could run them through the HD-Mod and get a nice, crisp image instead of the stretched, blurry one.
Offtopic, but I just find it funny that we are total opposites in this regard. The streched image you call terrible is the only way I can/ will play Heroes 3 untill the end of time. It's probably because that's how I played Heroes 3 since I first ran across it somewhere in 2001 - 2002. The compressed image you prefer looks horrible for me, everything looks like it's been elongated a bit on a vertical axis, battlefields and town screens look compressed and distorted, and, the worst thing for me, everything is atrociously tiny, I have to squint or use a magnifying glass the figure things out on the map. It's the main reason why I never play HD mod, despite a lot of tinkering, I can never get it to look right, every time everything is too tiny. Only time I ever use HD mod is when other mods require it to run. I hope I don't sound mean with this post, I just found it funny how display preferences can be on total opposite ends of the spectrum.