Guys. Let's not get confused here.
-AirPlay mirroring feature 'mirrors' what's on your iPad 2 or above or your iPhone 4s on to your big TV via the Apple TV black box.
-Video apps that stream video (like native YouTube app) uses AirPlay which is different to mirroring.
-When you use the 'mirror' feature you get black bars all around (left/right & top/bottom)
-There are Games that use the full screen via the AirPlay mirroring feature and there are games that don't. It depends on the Game. For example download Asphalt 7:Heat and you'll notice you get widescreen display on the big TV but if you play Batman or Max Payne or others that don't support AirPlay mirroring then it you get black bars left and right.
-What's neat about the AirPlay mirror feature is that when you play Asphalt 7 with 'mirroring' set to on, the race is shown on the TV while your iPad shows something completely different (the route in real time with your rear view mirror)
-The Apple iPhoto app on your iPhone 4s or iPad 2/3 with AirPlay mirroring feature on you get a different experience. All of a sudden it goes full screen, and you are presented with their iPhoto logo.
-Those who have the first generation iPad don't have mirroring capabilities so the Asphalt 7:Heat games feature aren't available or the iPhoto app features. With iPad 1 you can only stream video or music or image slideshow (which all stream full screen). iPad 2 and iPad 3 can also do this but with the added benefit of 'mirorring' what is displayed on the iPad screen. Some apps take advantage of this, some don't.
There are no special setting on Apple TV to get rid of the black bars. You may be able to change the zoom settings on your actual big TV.
Hopefully this will clear this all up. I have the iPad 1 and recently upgraded to the new iPad 3. I also have an iPhone 4s. Same issues.
I don't think the AirPlay 'mirror' feature has developed fully yet. It has it's limitations but also has its advantages.