I haven’t seen the DVD but my guess is that b/c Withnail & I is one of the early Criterion DVD releases, the video is not formatted for 16×9 televisions. This is exactly the case with Picnic at Hanging Rock which I just watched, and is presented in 4×3 1.66. One would assume that now that 16×9 is the standard for DVD releases (and has been for a number of years), they should reformat and rerelease these older DVDs from the collection.
I don’t know what you’re talking about in terms of resolution. Having a title letterboxed and pillarboxed has nothing to do with resolution or picture quality.
I agree with your diagnosis — they have reformated a 16:9 widescreen movie into a 4:3 fullscreen movie which makes it look simply awful on a widescreen tv.
P.S. Resolution is the number of active pixels in each frame. So of course letterboxing and pillarboxing reduce the resolution of the DVD.
I’ve got the UK Anchor Bay 20th Anniversary edition, which is the first edition released in an anamorphic format (1.77:1). “Windowboxing”, as I’ve heard an all-around black border referred to, is especially bad. You’ve only got 480 lines (or 855×480 pixels, in digital terms) to work with, so any border robs you of detail. This UK version is of course 576 lines (PAL) and the image almost perfectly covers the entire area. A very good remastered release that Criterion should really consider buying to update their old copy.
B. Factor
The Criterion release of Withnail and I is both letterboxed and pillarboxed. Why? Why do they cheat us out of 3/4 of the pixels of a normal DVD release?