That's actually a very good explanation.

All films are cropped for the various ways they're displayed, you never see all the way out to the edge of the frame, even in the theatrical presentation. The cropping of a film is always a judgement call. But even with that in mind, I agree that the DVD images at the beginning of this thread seem over-cropped.

Sometimes films are shot with both 4:3 and widescreen in mind, and matting lines for both formats are on the director's viewfinder. The director frames the shot as a compromise between the two formats. This allows a transfer to 4:3 video where they don't have to do much pan-and-scan work. It also sometimes means that the TV 4:3 version displays more above/below information than the theatrical version (hence the visible mics in some badly transferred films).

Here's a fun example: The MST3K movie was supposed to be matted a certain way when presented in theaters (part of the normal instructions that come with the film). Some theaters didn't follow the instructions and hence you could see the pupeteers in certain scenes.

Something that HBO caught some flak for was broadcasting certain 2.35:1 films cropped to 16:9 for their HBOhd channel. HBO's (potentially valid) argument was that most people with 16:9 televisions bought them because they wanted the black letterbox bars to go away, so cropping to 16:9 reduced call-in complaints by their HD customers. The complaints by the few people "in the know" who preferred the 2.35:1 presentation were, I'll bet, less than the complaints they would have gotten from Joe Sixpack who just bought his first HDTV and got mad because he was still seeing letterbox bars.