This happens often with home-burned DVDs. It's not an issue with the software.
Home burned DVDs don't always trigger the widescreen toggle on DVD players. But if you manually set your disc player to widescreen, it should play just fine.
I've tried just about everything, including playing with the DVD player (or rather, it's a blu-ray player), and the same thing always happens, but only to the main menu, which is the strange thing - the scenes menus are fine. Sometimes the bars either side of the image are black, other times they are a silvery "noise"! If I change the size of the imported background image to a 4x3 image, the menu does display widescreew (but of course the background image is only 4x3), and the scenes menu seem to shake slightly. Funnily enough, if I burn a standard, non-widescreen DVD, the main menu displays perfectly, but the scenes menu and the footage is letterboxed (I would expect the footage to be, but why the scenes menu?).
My next step is to try a different blu-ray player - maybe it's a problem with mine, but I get the same problem when I play the DVD on my imac, so I'm really not sure...
When I tried importing the DVD Template file into Premiere Elements, I see that they are 1440x1080 in resolution. They are the same ones used even when the project/clips are 1920x1080. I think the problem is that the resolution of the template is fixed and the same one is used for all the projects that are deemed "HD".
If the same test works fine on a 1440x1080 project, it will confirm this theory. Either get a clip that is 1440x1080 or Interpret this clip to 1440x1080 from the right click menu in the Project Bin. It is only a theory. Other experts may clarify.