Skasai... when running widescreen mode and your TV still is drawing 640x480, do the images look squished?
If they do, then your Wii is working fine. Cuz a squished image means that the time the TV take to draw a horizontal line hasn't changed. Which means it's you can't see the entire line, rather a condensed one.
SDTV specifics 480i horizontal lines, EDTV specifies 480p horizontal lines. Neither specify how long each horizontal line should be. It's why widescreen mode has nothing to do with progressive scan. HDTV is different. It's always widescreen.
Bleh I'm not going to get into this... think what you want... as in you specifically said you *think* it's outputing at 640x480 still. Your letting your mind play tricks on you....