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I just tested out a regular DV and widescreen DV project with the same results, so I don't think the format has anything to do with this problem.
Your 2nd monitor isn't an external device; it's a second display and is managed by the OS. External devices are cameras and other devices connected by firewire, USB or accelerated hardware cards like DeckLink or Matrox.
Try creating a workspace that has the Program Monitor on the 2nd display (and nothing else over there) and then sizing the monitor to fit.
I have Premiere CS3 set up on a PC (with two monitors) right next to this Mac, and when I go to external device (on the PC)for video playback the 2nd monitor appears in the drop down box. When I work on HD projects on the PC and select the 2nd monitor as video playback it works without a problem (although it's not ideal since it is a 4:3 monitor)
Is this a difference between the Mac and PC versions of Premiere?
Has anyone out there working on a Mac been able to use a 2nd monitor for video playback?