play DVD movie on widescreen HDTV with 16:9

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I am wondering what would be the optimum settings for converting a dvd and/or blu-ray to AVI for use on a 56" 1080 widescreen through my pc?  I've noticed that my TV does not really like 2.35:1 aspect ratio pressed DVD's as it causes some squishing to the image.  It would also be nice if the file would still be able to play on ps3.