I'll post the original widescreen shot again, so you have a point of reference to use with the following screenshots. You can also hover your mouse over any other screenshot to see how it compares with how a game SHOULD look in widescreen.

First, let's see what a centered image would look like. This is a standard 1152x864 image, centered on a 1680x1050 display:

As you can see, with only 56.4% of the screen being utilized, a LOT of that 20" monitor is absolutely being wasted! Also, you can really see what a difference a true widescreen ratio and FOV gives you - peripheral vision is greatly enhanced, and makes the game that much more immersive.

One way of filling up the remainder of the screen is to stretch the image out, to fill the entire screen. This would make the game "seem" like 1680x1050 full screen. The effect is not pretty, however:

Now while it certainly looks okay from this view, keep in mind that the resizing for these screenshots were done in photoshop, and not in realtime. In the actual game, all edges become very blurry, and pixels have an awkward shape. Think of what it is like to boot into windows the first time on your large monitor, before installing video drivers. Not pretty. Also, the FOV is anything but correct, and the environment has a dull, fat, blurry feel to it. To me, it ruins the experience quite a bit.

The third way of handling standard resolutions on a widescreen display is to scale it with a fixed aspect ratio. This takes the 1152x864 image, and stretches it to an effective 1400x1050. So while you will get 'pillar boxing' on the sides, the aspect ratio remains the same, and pixels are not stretched: 

This is by far a better solution than a stretched image. You aren't missing out on anything compared to stretched scaling, and the image looks 'correct'. Because pixels are 'blown up', you will still have a more blurry look to the image due to interpolation, but not nearly as bad as as the squashed mess you see above.

Each display type has its own pros and cons. Let's go through each of them...