Sigh... the black bars are supposed to be there, in fact if you're following the instructions in this video and most other guides, your movies will end up with the wrong resolution and therefore a vertically stretched image.
If you're watching a movie, there are almost always black bars, because the movie isn't shot at a 16:9 ratio, but rather 2.35:1, 4:3 or something similar. So, simply re-encoding the movies of KotOR and KotOR 2 to 1920x1080 is the wrong way to go.
If you wish to do it right, you have to check every file's original resolution and set the settings for re-encoding accordingly. Most of them have a resolution of 1600x680, equalling an aspect ratio of roughly 2.35:1. So, upscaling these to 1080p would result in proper 1920x816. There is a difference of 264 pixels between the target end result's resolution of 1920x1080 and the current resolution of 1920x816, therefore there are two black bars at the top and bottom with a width of 132 pixels each. Follow me so far?
There are also a few movies with a ratio of 4:3. Upscaling them correctly would result in a resolution of 1440x1080 with black bars on the left and right (240 each).
There also are few odd and unique files, but figuring out the right way to encode them isn't hard if you've understood the process.
Finally, some movies don't have to be re-encoded at all, if you're using TSLRCM, since they've been replaced by in-game cutscenes.
Now, hopefully all this will be irrelevant for KotOR 2 with the new patch, with the native widescreen support and everything, but we'll see. And the process remains the same for KotOR of course.
If you're interested in the matter, read up on aspect ratio changes in film history. Ah, maybe I'll create a more detailed tutorial in the future on how to do this exactly, if there is interest.