Puggo - Jar Jar's Yoda said:
Also, to my consternation, BOTH versions fail to squish to the proper aspect ratio if I set the aspect ratio on the TV to 4:3 (i.e., it doesn't add additional letterbox in either case).

You need to set the aspect ratio on the DVD player to 4:3 to test this out.

However, there is SOME difference in the resulting files, because the icons that are created in DVD-Lab when I open up the .m2v files are different - one icon has larger letterboxes than the other. My question is, what is the difference in the .m2v files? Is it just meta information stored along with the video, that some applications use?

The only difference is the 16:9 flag. The actual encoded video is the same either way. (Unless the encoder is doing any resizing.)