The 4:3 aspect ratio (not resolution) looks stretched and wrong while the 16:9 aspect ration looks correct.

1280x720 (or 720p) and 1920x1080 (or 1080p) are resolution with 16:9 aspect ratio. These are the correct widescreen options for modern TVs. 4:3 aspect ratio (with resolutions such as 800x600 and 1024x768) mostly got phased out when we moved from the massive tube (CRT) displays to the the LCD displays. If you actually played the game on a proper 4:3 display, you'd find out that your character would actually look like the one in the second picture with correct aspect ratio.