Oh squeeze would work but it doesn't retain as much sharpness as letterbox. With squeeze you have several image resizings going on which degrades the image slightly. Letterbox just masks the 4:3 image.
Shaw is correct. Letterbox and Squeeze start with basically the same image. In Squeeze, the camera digitally resizes from 372 lines up to 480.
If you're going to film-out, the transfer lab is going to resize your image up to 1080 lines anyway (at least, that's how DVFilm does it).
So for letterbox, you start with 372 lines and they stretch it up to 1080.
With Squeeze, you start with 372 and the camera stretches it to 480 (introducing some artifacts along the way), and then the post house will stretch that to 1080.
So Squeeze will have an intermediary stretch, whereas letterbox starts with the cleanest source possible (and should therefore yield the cleanest final results).
I thought that squeeze mode would be superior because it takes the 16:9 frame, stretches it up, THEN puts it in the DV codec, so you retain a lot more color info. You lose out on having the frame pre-stretched before it hits the 4:1:1 color with letterbox mode.
It makes such an infitesimal difference, if any difference, that I haven't ever been able to devise a test to see where the difference is, if any (and I'm trying to find a way to work "difference" into that sentence one more time!)
Squeeze stretches it and then compresses it. Letterbox black-bars it and then compresses it. Theoretically Squeeze will get a little better compression than a normal frame, since there's less unique data than in a normal frame. But Letterbox should do even better, since almost 25% of the frame is solid black (the easiest thing in the world to compress).
So my contention would be that letterbox should retain more detail, both from not encountering a preliminary stretch but also due to more efficient compression because of the black bars.
But at this point we're talking theory, because I haven't figured out a way to test it yet to determine for sure.