Well since you are doing an anamorphic set, you don't have the option of burning them into the black bars, really. The black bars that would be put there on a 4:3 TV are not part of the encoded video (I realise you probably know this already).
If you were to put them burned in to the tiny black bars that are a part of the video stream, they would look odd on a 4:3 TV because they would be up too high. And on a Widescreen TV they would look really weird so far down.
You don't really want to burn them over the top of the video either, since that's not how they are on the LD and you would be losing some of the picture (this is just my preference though). If I am watching a letterboxed movie I would prefer the subs in the black bars.
I think that encoded subpicture streams give you more compatiblity with different shaped TVs.