I tested a few clips and photos, and here is what I found:
When it is a photo, the black bars are scaled appropriately to keep the same aspect ratio, and all is good with the "widescreen" setting in the timeline settings (gear wheel icon).
For videos that are 4:3 and properly recognized as 4:3, the black bars are inserted into the image correctly. They are however larger than the photo black bars above in order to keep the proper aspect.
For videos that are 16:10 (like a photo might be), the image is squished into a 4:3 box first, then the same size black bars as above are added to the image. The video ends up being squished. The scaling options, fit or fill, still have the same squished appearance.
I'm not sure if I wrote that well enough to be understood, but basicly photo's are scaled well and dynamically based on their size, where as vidoes are forced into one of two ratios by stretching or squishing, then the black bars of the same size are added to the picture on top.
I don't mind publishing videos in 16:9 with black boxes are whatever is necessary, but I don't think its too much to ask for Avid Studio to be able to accept various ratios and add black bars of different sizes as required like in the photos rather than squishing videos to accommodate the only size of black bars available.
I wonder if there is a way to get Studio to recognize a 16:10 video as 16:9. At least it would be less altered, but as 4:3 it does not look good.
Thanks