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I guess you only want the display stretched when playing a video?
Try pressing the Y button a few times during playback to cycle through various stretching methods. Not sure you'll find exactly what you want, but you'll at least see all the options.
I believe it's also possible to set playback to 4:3 via the video settings menu. In this way XBMC's menus will remain 720p, but when playing a movie your TV's own smart stretch can take effect.
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