It would be extremely useful if implemented.
It would be a huge degradation of the movie...
I remember this setting being implemented in 16:9 TVs since the glorious times of Sony Trinitron CRT TVs. Some days ago I bought a Toshiba LED HDTV and this feature of non-linear stretching was there under the name of "Super Live". I think it's hard to find a panoramic TV not offering something like that so, in my humble opinion, if that setting has been there all along these years it must make some sense.
As I've already underlined, certain sources with lots of camera movement and panning shots render this setting downright useless, as they make the distortion too noticeable. But on the other side, there are lots of sources where camera is usually more or less still (for instance sit-coms, interviews,...) where non-linear stretching makes a better solution than the regular one. Even I think that perhaps the degree of non-linearity could be made adjustable by a parameter in options.
And my final reason is that, what the hell!!, an extra feature like this wouldn't hurt at all and would be and added value for VLC compared to other players...
Thank you very much for your attention, and specially for the amazing program you offer us.