Letterboxing is when you manually scale a widescreen picture down to it into a 4:3 frame without distorting the image. You see it a lot with widescreen DVDs that are played on 4:3 TVs. AKA "those black bar thingies."
I'm not sure if you can do it in Movie Maker, but I would actually be surprised if there isn't a way. It may be as simple as specifying a different frame format during the encoding process, or changing a setting for the project to tell it that you are using widescreen footage, but want to edit in 4:3. Unfortunately there is zero difference between 16:9 and 4:3 DV footage, except how it's interpreted by the player. The pixels have a "non-square" aspect ratio, which means that the image is the same number of pixels wide whether it's a 4:3 DV or 16:9 DV video; 16:9 DV video is just squished to fit a 4:3 frame for transport, then stretched back to display properly.
Sorry for the the long explaination, but it helps you understand what it means when you see "0.9 pixel aspect ratio" (4:3), or "1.2 pixel aspect ratio" (16:9) in your encoder settings. Changing that in combination with something like "Keep aspect ratio" or something like that may force the encoder to letterbox it or you.
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If not, just send me a copy and I'll output it for you.
