Here is one example of how to use the new controls, in this case, converting a 2.35:1 anamorphic widescreen movie to pan and scan (NO BLACK BARS) on iPod's native 320x240 screen.
The first way is to use Customize Crop. This crops the image to about 320x240. It will not appear exactly as cropped because it is anamorphic (stretched) but will be very close. There will be no black bars on your iPod.
The next way is a little more complicated but gives more control and better results with anamorphic widescreen movies. You can leave crop set to Automatic. This method uses the Advanced Resolutions screen to manipulate the image. Note that on this screen, the anamorphic image has been "unstretched" and appears normal. First, select Supported by Device in the upper right. Then scroll down the list of screen sizes and select 320x240, the iPod's native screen size.
You can now use the Resize slider to vary the amount of black bars you are willing to accept and also the amount of side image you are willing to loose. All the way to the right is No Black Bars, all the way to the left is regular black bars. The effect of these adjustments will be seen on the displayed image from the movie. You can use the Play Time slider to look at different points to make sure your choices are good tradeoffs for all parts of the movie.The yellow outline is the iPod screen.
The adjustments (particularly when using crop) will be slightly different for letterboxed widescreen but the procedure is similar. Don't be afraid to experiment.