Yes, the settings in the Sky+ picture settings menu only apply to programmes broadcast in widescreen, not 4x3 content. The programme you were watching on LIVING2 was in 4x3, and it was switching from widescreen because the adverts are in widescreen.
If it's a 4x3 programme, and you're switching the display mode to 16x9, you're stretching the image. Many people, prefer this because the black bars become too distracting when viewing in the correct proportions.
To permanently set the screen to 16x9, look in the TV settings menu to see if there is an option for how 4x3 content should be treated. Alternatively, have you tried the AUTO aspect setting rather than 16x9? usually that tries to fit 4x3 content to the whole screen, rather than with the black bars; if that doesn't work, consult the page in the manual describing the aspect ratio controls, and supply the model number.
