"Also, I should point out that at no time do any DVD players simply toss out one out of every four lines for display on a 4:3 set. That would simply look way too crappy. There's a resizing algorithm that's used"
Actually, they do, or at least they did. I've not seen anything official stating that this procedure is no longer used to some extent.
Some of the first-generation players didn't do a very good job of 'downconverting' the anamorphic image for standard TVs. A lot of shimmering was created. This happened because when a player downconverts an image, it (basically) removes one line of resolution for every four. Different players do this in different ways, but generally the older players didn't do near as nice a job as today's do.
http://dvd.ign.com/mail/2000-08-11.html
On a 4:3 TV without doing the 'squeeze', the DVD player must be set to '4:3' within it's setup menu. This forces the player to 'downconvert' the anamorphic image by removing some of the scan lines. This plays the image back at the correct proportion, but obviously loses some of the original resolution. It can also introduce unwanted artifacts, especially on scrolling credits etc.
http://www.hometheaterforum.com/htforum/showthread.php?&postid=511908#post511908
When it comes to DVDs, anamorphic DVDs are specially encoded to include more visual information than standard DVDs. When an anamorphic DVD is played on a standard 4:3 TV, every fourth line of this extra resolution is ignored. (Keep in mind that your DVD player needs to be set for a 4:3 TV.) You still get a superb picture and you probably would not be able to tell the difference between anamorphic and non-anamorphic DVDs.
http://www.widescreen.org/dvd_anamorphic.shtml
Video Performance: Anamorphic Downconversion
This was an interesting face-off between the Toshiba 9100 and the Sony 7700. Sony players have long been regarded the heavyweight champs of downconversion for their remarkable ability to eliminate the artifacts that are involved with the process. But this comes at the expense of a noticeably softer picture from the Sony players on 4:3 displays with anamorphic widescreen material and such was definitely the case with the 7700. Looking at the two players via S-video inputs on my old Pioneer SDP-K5193 RPTV the Sony definitely presented a softer picture that was a bit more refined presenting motion. The 9100's picture was clearly sharper and more detailed, and for my money eliminated downconversion artifacts to the point that they weren't a distraction. I think the trade off the Toshiba offers of a few downconversion artifacts for a noticeably sharper picture is one that most people will prefer.
http://www.dvdfile.com/tech/review/players/toshiba_sd9100.htm
There is a new section with DVD VE that is not included on the LD version, i.e., the anamorphic test pattern section, which can be found at Title 20. These patterns can aid you in finding the best DVD player in your price range. With these patterns, you can see how well the DVD player is able to take an anamorphic image and letterbox it for 4:3 TVs. This is important if you have no plans on purchasing a 16:9 TV, because some players actually cut off a portion of the picture during this transition.
http://www.sdinfo.com/volume_4_3/dvdve.html
This nicely segues into an issue that has discouraged some studios from fully embracing this superior video format. There are a limited number of 16:9 monitors and 4:3 monitors capable of performing the required vertical squeeze in the hands of consumers. As a result, many DVD owners are forced to use the player's hardware to convert the anamorphic widescreen images to 4:3. On inexpensive players, this is done typically by throwing away every fourth horizontal scan line. As you would expect, this could cause an even more visually annoying kind of jaggedness than 4:3 letterboxing. But several manufacturers, Sony and Pioneer to name but two, have developed more sophisticated algorithms to perform the conversion that are quite nice to view.
http://www.dvdfile.com/news/special_report/production_a_z/anamorphic.htm
When I showed the difference in the level of detail on my friend's 4x3 tv which had anamorphic squeeze, it was noticeable on very fine details, but not on the picture overall.
"Many films are telecined or scanned to HD resolution before the DVD is made. Let's say, for argument's sake, that the resolution is 1080p -- 1920 x 1080. Or, let's say that we're looking at a frame from Episode II or III, which originates from 1080p. Whatever: we're starting with 1920 pixels wide, by 1080 pixels high. Those pixels are square, by the way.
Now we go make a DVD.
The horizontal width goes from 1920 pixels to 720 pixels -- a compression of 8:3, or 2.66:1. The vertical height goes from 1080 pixels to 480 pixels -- a compression of 2.25:1. Ergo, exactly analogously to film, the image is squashed horizontally more than it is squashed vertically, and everything in the frame appears too tall and skinny."
But your argument misses a key point. The anamorphic process attempts to restore the original resolution from the "compressed" frame. As far as I know, no DVD players attempt to recreate the original 1920x1080 from the 720x480 frame. You are simply talking about resizing the original video (lowering the resolution) to a size more compatible with DVD, but this is only half the equation.
QED, you cannot "squeeze" a picture larger than 720x480 into a DVD frame. 
(Not that that says much about me, either.)
