"I'd say that this is the most likely scenario. The Last Starfighter DVD seems to be a pretty slapdash effort overall; aside for the nice "making of" featurette, not a lot of effort seems to have been put into it (the transfer was recycled from laserdisc, etc). I'd love to see them re-release it with an anamorphic transfer."
Check your DVD Installation / settings. The Universal DVD released back in 1999 contains an Anamorphic transfer (done especially for the DVD as the Japanese laserdisc used a non anamorphic D1 Master albeit in widescreen / 2.35:1 format).
The HD DVD released this past week is a decent upgrade but nothing great.
BTW- I strongly disagree with your opinion about the DVD. Back in 1999, this Collector's Edition was highly revered (and still is to this day). Plus it was the baby of Sharpline Arts (David Fein & Michael Matessino) who were the main personel behind the Director's Edition of Star Trek The Motion Picture.
Considering they almost had zero budget to work with (welcome to Hollywood), their DVD of TLSF is one of their greatest achievements.
Their website is currently being rebuilt (www.sharplinearts.com) but the previous one contained a great making-off about their Last Starfighter DVD.