Unfortunately for HDTV owners, the vast majority of ps2 games were designed to be displayed on standard definition sets in a 4:3 aspect ratio. So while results vary between different TVs and games, in general most ps2 games are going to look better on the old standard definition CRT sets.
The problem lies in the fact that most ps2 games will only output a 480i signal in a 4:3 ratio (which is the native resolution and aspect ratio of SDTVs). Your new LCD HDTV must de-interlace and interpolate this signal for display on a higher resolution screen, which can result in image degradation. In addition, the difference in aspect ratios between the 4:3 game and your 16:9 widescreen TV will cause the picture to be slightly stretched horizontally, (probably the distortion you are noticing).
To get the best picture quality and to be able to take advantage of higher display resolutions in supported games, your ps2 will need to be connected with component cables. Also, be sure to enable progressive scan (480p) on any games that support it. When displaying in progressive scan mode, games should look noticeably better than they did even on your old television.
Some TVs have options to correct differences in aspect ratios by adding black bars to the top or sides of the screen. Be sure to use this feature on your TV if possible to correct the stretched 4:3 games, and be sure to enable widescreen mode to fill the full screen when playing widescreen capable games.
Here is a good online database to find which games will support progressive scan and widescreen.
The Gamecube is very similar to the ps2 with scarce 480p and widescreen support. The Xbox however will output 480p on most games with some even capable of 720p and 1080i. Your Xbox will also need to be connected with component cables, and then you will be able to enable HD resolution modes and widescreen display from the Xbox dashboard.
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