I think you are confused about this. The sizing of the black leterbox bars should be in relation to the aspect ratio of the film. Pictures are not "squished" on DVD in comparison to Blu-ray. You may be referring to the "zoom" features on players and TVs. If you watch the same movie on DVD and Blu-ray, there will be no difference in size of the bars and there will be no "squishing" in either format unless you do the squishing.
The only difference will be in picture resolution. Blu-ray will have a higher bitrate and higher resolution, but the picture size as it is shown on your screen will be the same.
No I’m not confused at all. It’s from personal experience.
I posted this before, but I’ll tell the story again.
We have a 52” LCD HD tv. A brand new DVD player (kids fried the old one) that has an up-converting feature to 1080i and an even newer PS3.
We went to Blockbuster on the day that “27 Dresses” was released. The girl there could not find the Blu-ray so we got the DVD. We put the DVD into the player and put on the subtitles for the “Benny and the Jets” sequence. The words were in the black of the letterbox.
The girl from Blockbuster called and said she found the Blu-ray. We got it and played the same sequence again. The words were in the picuture. The black frames were significantly smaller. Give it a shot with a movie in both DVD and Blu-ray. You’ll see.