Sounds like a problem with how your graphics driver upscales (or, in this case, doesn't) low-res images. You'll need to tell your card to stretch them to fit the screen. How you do that depends on what card and driver version you have. Alternatively, if you use the widescreen fix (see the sticky), it has special algorithms to allow the movies to fill a wide screen, so it might do the upscaling for you.

Either way, I don't think there's any difference between the versions in how movies are handled.

Unfortunately the cutscenes have low resolution. The only option is to either scale it or stretch it (both of which you can set on your graphics card options, although I wouldn't recomend the latter).