Check the Properties of the "squished" Video. It is likely not Square Pixel, i.e. PAR = 1.0.
Try Interpret Footage, and adjust the PAR, to see if you can get the same look.
Note: depending on the exact specs. of both your Project and that footage, you might also need to adjust the Fixed Effect>Motion>Scale, and maybe even Motion>Position.
Right cliking on teh clip in the project window and selecting Interpret footage did the trick! I just had to select DV NTSC Widescreen and we are back to widescreen, fullscreen goodness!
What can sometimes happen, is that the PAR data in the file's heard, is not seen, or interpreted correctly, by PrE. This can happen to other attributes, besides PAR, but that one is fairly common. I see it most often, when the footage has either been converted, or generated by, say a video screen-capture program, though some cameras seem to be prone to poorly written header info too.
We are at a time with video, where PAR can really be a PITA (Pain in the Aspect). The SD PAR's, Widescreen and Standard, plus the variations between NTSC and PAL, are still with us. More and more, we are dealing with HD footage, where PAR = 1.0, so less confusion, EXCEPT if one shoots HD Anamorphic, and then PAR comes into play, yet again.
When SD is finally dead, all TV's only use Square Pixels, and Anamprphic falls out of favor, then everything will be PAR = 1.0, and life will get easier. Until then, I hope that Adobe never takes away Interpret Footage!
Yes, as Bill said, it is the most frequent issue faced. If one is editing videos all from same camera/source, one could easily choose the matching preset. But in case like yours, Interpret Footage is the best option. PAR at first seems a small thing but its really important in video editing.