Composite video is 480i video that was originally designed to be viewed on a 4x3 video screen. Anamorphic composite video is taking a 16x9 video source and squeezing it to a 4x3 image. Everything in the image looks distorted skinny and taller than is should be if you look at the image on a 4x3 display. However, if you display it on a television that is capable of stretching the 4x3 image out to 16x9 (like most modern HDTVs), it looks normal.
The advantage of anamorphic is that it preserves the maximum 480i resolution if you have a widescreen TV. The disadvantage of anamorphic video is that if you have a 4x3 TV, there is no easy way to view the image without distortion. This is probably why Dish decided to go with letterbox on composite output.
I stole this text from the crutchfield TV glossary:
"Anamorphic video
Refers to widescreen video images that have been "squeezed" to fit a narrower video frame when stored on DVD. These images must be expanded (un-squeezed) by the display device. Most of today's TVs employ a screen with 16:9 aspect ratio, so that anamorphic and other widescreen material can be viewed in its proper proportions. When anamorphic video is displayed on an old-fashioned TV with a 4:3 screen, images appear unnaturally tall and narrow."
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