The Cult of Rapture has a lengthy post on "the truth" about widescreen issues in BioShock (story). Apparently this was a design decision, though it sounds like 2K is contemplating an official fix. In the meantime, a homebrew workaround is available (story). Here's word:

We understand there has been some concern about the implementation of widescreen mode in BioShock. Hopefully, we can clarify how we’ve chosen to do this.

The first thing we want to make clear is the mode we developed the game on and the optimal mode for playing the game is the widescreen mode. 90% of our development stations were widescreen displays: artists, programmers and designers.

- BioShock was primarily developed and tuned for widescreen mode. Artists and designers worked with widescreen displays and chose a field of view (FOV) that best reflected their intentions with respect to the way the world is perceived, the perceived speed of movement of the player relative to the world and the amount of the world they wanted to be viewed for the best game-play experience. We went through dozens of iterations and finally settled upon a widescreen aspect ratio that best suited the gameplay experience.

- When playing in widescreen modes the game makes use of the full screen resolution, and does not crop or stretch a lower resolution image into a wide screen one. For example, at 720p the game renders natively to the full 1280x720 resolution.

- Once this FOV was established, we chose to keep exactly the same horizontal FOV for standard def displays, so as not to in any way alter the gameplay experience.

- Instead of cropping the FOV for 4:3 displays and making all 4:3 owners mad in doing so, we slightly extended the vertical FOV for standard def mode: we never wanted to have black bars on people’s displays. (This way, everybody is happy…) This does mean that people playing on a standard def display see slightly more vertical space, but, this does not significantly affect the game-play experience and, we felt that it best served our goal of keeping the game experience as close as possible to the original design and art vision on both types of displays. Reports of the widescreen FOV being a crop of the 4:3 FOV are completely false.

One thing we can assure you that all these decisions were made with the best interests of the game in mind. We didn’t save any money or development time by choosing this set of parameters. We did what we thought was the best thing for the game: developing and optimizing it for widescreen displays, and making the decision not to do the usual crop for 4:3 displays. As a consumer, you certainly have the right to disagree.

We understand that not all users might not be happy with these choices and we will be looking into options for allowing users to adjust FOV settings manually. But as we mentioned earlier, changes to video game code do not happen in minutes or hours. We appreciate your understanding.