MPEG 2 files include a setting telling the player what aspect ratio to use -- that is, the shape of the image during playback. WMV files do not. Your MPEG file is probably meant to play back at the 4:3 ratio of most TV sets and computer monitors. When the video is converted into a 720x480 WMV, it plays back at a different ratio and looks stretched, as you say.

To fix this, convert the files using the "WMV - for desktop viewing" setting, and click the Properties button. On the Properties tab, select "DVD Quality Video (2 MBPS CBR)". For the "Encoded BitRate" select "2000 kbps 640x480". Converting to a 640x480 image will produce a WMV file that plays back without stretching, and the very high quality setting should eliminate any choppiness.