I would say cropping would be the best way to handle it. Sometimes the image they used on the original cover of a game is actually a cropped image anyway, powerstone is a good example of this:
This kind of shows the different versions of the same cover. The top left is the original image, the color boxes indicate how each version of the cover was cropped.

The original japanese box art was the full image, the american box art was cropped down to give it more impact I assume. When I did the custom cover I was able to find the original image with no logos added and crop it down. The next step was finding a good quality scan of the logo.
Stretching and distorting the image to fix the longer format ussually looks bad. If the image can't be cropped I'd say the best thing to do is look for another image if you can't convincingly extend the image somehow...
I can see how people would only want to have the original box art, however there are ussually so many different versions of the art anyway that I feel custom covers are totally acceptable.
For instance, the japanese cover for Capcom VS SNK is pretty awesome. For some reason when they put it out in the US they just slapped an image of Ryu from Street Fighter alpha on there with a terrible pic of Terry from who knows where:

As for CD vs DVD I just like DVD cases better, they look nicer on a shelf, the cover leaves more area for nice images and they are more durable then CD jewel cases. It's just a personal preference.
I have been printing DC case art and storing them in white dvd cases. PS1 games in black dvd cases, same with Sega Cd and Saturn. All my GBA games are in DS cases, and I intendo to order media cases for the rest of my cartridge stuff soon.