Paul, yes is the answer to your first question.
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What I think is that there is too much blanking on 4:3
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I would agree with that.
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if you can get a full picture to the edges then your TV is fine
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Yes I can, and I do believe there is nothing wrong with the TV anyway. I believe my model is supposed to show dvd as it does. However it does not show the whole picture (regardless of overscan). The more expensive Sony's do have extra aspect ratio modes which sort this out. Perhaps these can be activated (on cheaper sets) in the service menus, I don't know.
Example from Gladiator 48 mins 51 seconds 1st frame of line up shot:
Full 16:9 image as extracted from Power DVD on my PC:
Mock up of image as shown on Sony KD32DX40 in "WIDE" mode:
See how on the left I lose about two thirds of Oliver Reed (dressed in black) and the top of the tower. And on the right I lose most of the slaves arm? Also a small amount of image is lost top and bottom (the black bars are thiner, by ratio to actual film image height, on the tv) this may be due to overscan alone but I'm not fully confident of that either. Side Note: I've lost more to the left than the right but that's only because RGB centring was set up incorrectly to -5 after I was playing to see how much of the image I could see left to right by using RGB centring alone.
For your own interests you may like to confirm this on your Sony? VHS is the same, Star Wars EP:4,5,6 I have in 2.35:1, they come out the same, this time in "Zoom" mode I beleive.
Simon