This is a generic Yahoo! player issue that affects all Yahoo video users, not just Pinnacle users. Yahoo! Video should resolve this issue in the future. In the meantime, here is a workaround that should work:
1. Go to Setup Options and select the Project Preferences tab.
2. Under Project Format change the option from “Set from first clip added to project” to “Use this format for new projects”, then select NTSC Standard for example.
3. Click OK to exit Project Preferences.
4. Create a new project by going to File -> New Project.
5. Now drop existing 16 x 9 widescreen video to the Timeline. You will notice that Studio will automatically add letterbox bars to the clips on the Timeline.