The original videos of I-War 2 are encoded in 4:3 format, with horizontal bars. If you haven't changed the in-game video scaling settings, your movies are super-stretched horizontally and ugly looking. These video files are in 16:9 format without the bars.

Just replace the contents of the X:/Independence War 2 - Edge of Chaos/movies folder (make a backup first if you want to) and enjoy!