best movie conversion codec?

I have been ripping a few DVDs to watch on my ipad while I travel. I am using mpeg streamclip to make a watchable file. When I output via mpeg, I use an mpeg 4 codec with a letter box style. The movie looks pretty good on quicktime, but when you view it on the ipad, it seems to be stretched to fill the screen vertically and loses some real estate horizontally.

It is a standard definitition DVD that I am take a movie from. Should I convert via MPEG Streamclip to SD or is there another aspect ration where I can have the letterbox without loosing too much of the top and the bottom of the movie.

I drag it into itunes to get it to my ipad, but I don't think itunes is doing any converting since I am dragging the file in as an MPEG 4.

is there anything I am missing stepwise along the way? Is there some way Itunes compresses movies or is there only a certain way/codec an ipad will play back movies and video?

Thanks.