Sheep, you ask a lot of very good questions.
1. Surface area is most definitely maximized the closer you get to a square. There is a mathematical proof for this, but suffice it to say, you do get more bang-for-the-buck out of your square inches by getting closer to a square.
But, since most movies are 1.85:1 and 2.35:1, you lose all the extra benefits of those films when viewing them properly on a 1.33:1 screen. That's a lot of screen going to waste.
2. Human vision has been tested to see much better left/right instead of up down. It is more natural for us, plus tends to fit better on walls which are typically wider, than they are tall. So, instead of a small square that fits incongruently on your wall, it helps to emphasize the shape of your room and fit better. Both natural to your eyes, and to the space it is going in.
3. CRT is better in many regards. Fast refresh rates, lower burn-in potential, no bulbs, long life. Digital technologies are (typically) thinner, lighter, brighter, and require less maintenance. The maintenance is a big issue when you get into rear projection CRT as the red, green, and blue guns are all separate in a CRT setup and need to be aligned AT LEAST once a year on top of one another. Plus, individual color levels really should be setup on these units for maximum color quality.
Thinner is probably the big one that gets a lot of people going. Grab a plasma, throw it on the wall, add some in-wall speakers, and you have a very good image taking up no room real estate at all.
4. HDTV was debated for a while before 1.78:1 was decided upon. No clue why they didn't go to 1.85:1 which is a standard for movies. Either way, that level of widescreen is the future of display technologies. This is completely beside the point to CRT displays though. CRT can project in 4:3 or it can project in 16:9, or something altogether different if we wish. The real key is the source material and the huge increase in quality we get as we move from traditional analog 4:3 tv, to DVDs (typically widescreen) and HDTV (always 16:9).