Adding pillars in Handbrake during re-encoding to prevent stretching

Hey all, just found this place and so far everything has been very informative, but there is something i cant figure out. I'm still pretty new at all this though so bear with me. Here's the situation... I have .mkv rips of an anime that VLC and Handbrake says are 704x480, but upon further inspection are actually 704x528 (4:3)... When re-encoding them in Handbrake, no matter the settings, it flattens it to an actual 704x480 (22:15 or something) resolution, resulting in a squashed image.
Original:

After Handbrake:

But the interesting thing is, if i force 4:3 aspect ratio in VLC it looks correct... any idea whats going on? also
and strangely enough, when i burn to DVD it ends up doing this for whatever reason (720x540 4 : 3) which is the squashed version with black bars, then upscaled...

I thought that NTSC DVD's resolution was 720x480? is there something im missing? if someone could explain this it would be nice......:


I am authoring NTSC DVD's if that makes a difference. So i was wondering... is there a way to add black pillars in handbrake so that when re-encoded, it fills the screen vertically w/o messing up the aspect ratio? or re-encode upscale to 720 x 540?
sorry for so many questions, i just cant seem to find any accurate info as many people and places seem to contradict one another...