Actually, Apple have not forgotten about square vs. non-square! The version of FCP you're using does not support output to video iPod.
The recent Compressor update (for Final Cut Studio 5.1) includes a preset for encoding video to iPod. It outputs the correct sizes: 320x240. It also includes an anamorphic size, and a 1.85 and 2.35 size.
You can upgrade from FCP4 into the complete Final Cut Studio 5.1 package for only $199 by going here:
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www.apple.com]
-Paul from Apple