Hi Saramol -
My Wharfedale DV832B freeview receiver, bought from Argos in March 2006 for £40, failed this week, generating a puff of smoke in the process. Up to the point of failure, I had been very pleased with the box, which I used with a 7-year-old LOGIX 15 inch LCD TV with a 4:3 screen, giving a wonderful picture. On a 16:9 transmission, it gave a picture of the correct proportions, though obviously with the sides cropped off by the narrow screen.
The next day, I went to Agos and bought a Bush Twin Scart Digital Set Top Box for £17.99. I had exactly the same problem you described, that even when the box was set to 4:3 aspect ratio, after a second or so the picture would revert to 16:9 - which on a 4:3 screen meant that everything looked tall and thin. Strangely, the problem did not occur on BBC channels, where the picture had the correct proportions with the sides cropped off. The picture definition and colours of the Bush were much inferior to my old Warfedale.
Doing hours of searching on-line, I have found many people complaining of the same problem from modern cheap set top boxes, which I suspect all use the same basic chip set and software inside. Many users, I think, are not very discerning and just suffer the terrible picture proportions. I couldn't tolerate it, and took the box back to Argos and got a refund.
I don't have a solution at present, but I am going to try the TVonics MDR-240 (Tesco have it at £35), which I am confident does not use the same chipset and software as the others, so there is hope. If it has the same problem, Tesco will get it back!