MPEG Streamclip- which compression option to choose?

Export to QuickTime using the DV PAL or DVC Pro PAL codec. MPEG streamclip should correctly detect the correct aspect ratio and apply the Anamorphic flag to your clips.

Ignore the preview window, it's meant to be a "progress report", not a representation of the end result.
In fact, turn it off. It is stealing CPU cycles that could be better used processing your clips.

Read my MPEG Streamclip tutorials: [Part One|http://www.secondchairvideo.com/?p=739] and [Part Two|http://www.secondchairvideo.com/?p=694].

it has a black line either side of the clip...

You have somehow missed adding the Anamorphic flag. No problem, this can be added quickly in FCP.
Go to the Browser and scroll right until you see the column labelled "Anamorphic".
Click in that column next to each clip, adding a check mark. Your clips are now flagged.

and a grey line at the top and bottom...

The Window layout was previously 4:3 and replaces the area where there is no longer picture information with grey. Go to the menu bar and choose Window > Layout. Reselect the layout that you normally use. Alternatively, the keyboard shortcut, Ctrl and U will quickly give you the default layout.