As for the weird aspect ratio of the arcade SFII, that comes from a very strange resolution that the Capcom's CPS boards use (384 x 224). You don't notice it on a CRT of course because it looks normal, but in MAME or whatever things look fuct because the pixels aren't supposed to be square like they are in this pic. There is no upscalled compatible mode for this resolution most of the time so things have to be interpolated. On a standard arcade RGB CRT this is done transparently, but while running under emulation its hard to get it right.
As for the letterboxing on consoles, I always assumed this was because sprite size was limited for various reasons, and if the BGs were full sized it would look even more noticeable. SFII was a very high-end game back then, even for the arcade, so the fact that something sucks about the console ports is no surprise. I'm amazed the console versions turned out so well, honestly. One of the reasons why Fatal Fury Special is so good on PCE is that it has no letterboxing, and that really stood out at the time.