Does anyone know why Windows Media Center wouldn't correctly display a 16x9 video?

I just upgraded my home-built HTPC from Vista Ultimate (hey, it was a giveaway) to Windows 7 Ultimate - clean install.

After that, I installed the Divx7 beta (to get .MKV support) and AC3filter (so I could HEAR the MKV files).

Previously, under Vista Ultimate (32 bit), I had Arcsoft's Total Theater Pro for playing Blu-Rays and MKV decoding under Media Center.

Now when I play a 720p 16x9 MKV file, I get some 'letterboxing' - like it's halfway between 4x3 and 16x9 - with the aspect ration looking alightly squished as a result.

Here's the wierd part. If I use the Media Center connection software in my XBox 360 - it plays perfectly, filling the 16x9 screen edge-to-edge, just like Vista's WMC software USED to. Of course, beats the network up because the XBox goes to the HTPC, the HTPC goes to my WHS machine to fetch the data, it comes back to the HTPC, gets transcoded and streamed back to the Xbox.

I'm running the latest drivers for an NVidia card (as fetched by Windows 7). I have no idea WHY this is because if I play "ordinary" (i.s. SD) Divx files that are 16x9, they play just fine, scaled right up to my screen's edges.

It puzzles me as to why the same machine that properly converts the bits for the Xbox can't display/scale them properly for the attached display. Mind you, Windows Media Player exhibits the same symptoms.

Ideas?