When I try to set the size of the surrounding MovieClip the contents just get 'squashed'. I want it to stay the same and the parts outside of the 'rectangle to be hidden outside of the MovieClip. How can I achieve this effect?
Create the fixed width/height movieclip to the fixed width/height you desire. Use two instances, one as a background for the mc with the items and one as a mask for the mc with the items.