All HD formats are inherently widescreen and have much higher resolution than conventional DVD. You don't have to worry about stretching or flattening. The "flattened" DVD's you were watching are referred to as "anamorphic" or "Enhanced for Widescreen TV's". They squeeze the widescreen image horizontally into the aspect ratio of a standard image, relying on the widescreen display to stretch them horizontally back to the original proportions.
They have less effective resolution than a conventional DVD because they are cramming more image into the same number of horizontal pixels, however, this is still the best method for displaying a widescreen movie in SD, as it doesn't crop the image, nor reduce the vertical resolution by shrinking the whole picture to fit.
True HD content will usually look dramatically better than SD, but there are a few caveats:
1) Films are not normally shot in a 16:9 aspect ratio, so you will most likely still have bars on the top and bottom unless you zoom in. This will reduce the resolution, but HD content will still look very good due to it's higher resolution in the first place.
2) The actual number of pixels on your display determines the ultimate resolution you see. The highest consumer HD resolution is 1920 x 1080 pixels, however if your display is only 1366 x 768 pixels, or 1280 x 720 pixels, the higher resolution image will be scaled down to fit your display's resolution.
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