After learning some of the older games consoles did 16:9 through Anamorphic, it made me wonder, seeing as anamorphic is a streching teqnique, is it better to use 4:3 or use the wider Anamorphic? Will I lose any sharpness at all?
If you're talking about the technique used on DVDs to produce widescreen images in that originally-native 4:3 format, no there is no loss of sharpness when you use the widescreen option for DVDs.
For other products (like gaming consoles), the outcome depends ENTIRELY on how they are doing it. If they use a low-end technique and simply zoom on the image... it won't look very good on an HDTV. If they use a more sophisticated approach (like that of widescreen DVDs), images should look better.
If the game animation is as good as computer animation used for movies like Finding Nemo or Robots, etc., the images from the game should look pretty good. If the game animation is more along the quality of typical movies on DVD (say Austin Powers: The Spy Who Shagged Me, or The Dark Knight, or Terminator2), the game images won't be very impressive and there won't be much of anything you can do to make them look better. The large size and high resolution of HDTV displays give low quality SD images nowhere to hide.
For movies, the content is either authored in anamorphic 16:9 or 4:3 with letterbox. Either way setting up the playback for widescreen should get you the best quality.
For games that support the setting (wii, PS2, xbox original) they output 720x480 either way the only thing that changes is the aspect ratio. So with both settings you are going to upsample the content to 720p or 1080p and both of those resolutions are more than enough to preserve the detail in the original SD feed. Technically rendering the same number of pixels over a larger area lowers pixel density, but the increase in field of view is a significant contributor to immersion. I'd run widescreen every time for gaming.
Ok then thanks for the info.