That's a thorn in my side too. A device as far as advanced as the Droid and they don't fill that beautiful display screen. I also have an iPod Touch and everything I view, whether on-line or downloaded video, shows up filling the entire screen. I did notice that when viewing some You Tube videos on the Droid that there is an option for HD. When I select HD I get full screen. Droid should be able to stretch-to-fill. Heck, even my old Palm TX will stretch and fill the screen on videos.
The stuff that dreams are made of.