Subject TL;DR: So I have some 4:3 720 and 1080 content that I'm working on currently. My question is when it comes to h264 and common client devices and software do I need to 'pad' the video out to 1280x720/1920x1080 or can I keep it at just 960x720/1440x1080 and be happy with it? Most importantly trying to keep client compatibility up there.
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Any decent player will add black bars for display on 'widescreen'. If you add them in yourself, the devices with a 4:3 screen will have the experience ruined because then you'll get black bars both top/bottom as well as on the sides. If you add them in yourself, the new YouTube player screen that adapts to the aspect ratio will have ugly black bars on the sides. I expect the YouTube model to become more common.
So, I'd recommend you not add black bars. Maybe others will disagree, not sure.
I would say that if you are not creating content specifically in Blu-ray format, then do not add side bars. If you are creating Blu-ray content, than add them.