I have done a few SVCDs, but I think I remember reading somewhere
that if your capture has black bars, you crop to the 'action' region of
the screen and then somewhere specify that the black bars should be
present when playing. ie. somewhere specify letterboxing.
Is this correct? How do I do this?

Does this result in a smaller MPG file since the frames are only say
480x390 instead of 480x576?