Hi, Timothy,
You can use the free download MPEG Streamclip to change aspect ratios. You can download it at this link:
http://www.squared5.com/svideo/mpeg-streamclip-mac.html
When you say "squashed" to you mean "distorted"? iMovie has a fixed aspect ratio of 16:9 that cannot be changed. However, you can use the crop tool (the icon that looks like intersecting angles) in tool bar in the upper right of your screen to crop the video clip to fit or to fill the screen. This will leave you with black bars at the top or sides so that the clip will fit iMovie's 16:9 screen. It will not fix distortion in the clip, though. If the clip is distorted to start with you will end up with a distorted clip with black bars that fits the screen.
When you change the actual aspect ratio of an undistorted clip you will cause distortion. The people will look taller or fatter. With a clip that starts out distorted you can try to adjust the aspect ratio to correct the distortion. MPEG Streamclip should allow you to do this. Open in clip in streamclip, and click on File and chose one of the export options. You will then see a screen like this that gives you several aspect ration options including a custom option:
There are other free apps that you can download from the internet that I believe will adjust aspect ratios, e.g, Handbrake, VLC. I myself have not had the occasion to use them for that purpose, so not sure if or how they work. In the past I have used MPEG Streamclip.
-- Rich