Okay; so maybe we do disagree. 4:3 footage on a DVD, on a properly set up player and TV, should display pillarboxed. In other words, I think the method used here works. The exception to the rule is footage that Encore "sees" as odd in some way.
What you are doing is creating 16:9 footage, composed of 4:3 with the letterboxing part of the video file, and yes, that works, and will fix some problem footage that Encore does not see correctly as 4:3 or 16:9. And will work on a some user's player/TV combo/settings that would not display it correctly.