Not to worry, DVDFab is automatically cropping down to the actual video information. The black area removed was added to the original to make it DVD compliant (720x480). The ratio listed on the DVD box of 2.35:1 is more of an approximation and should be used only to differentiate it from other film formats (like 16/9).
DVDFab is removing the blank space (per my previous statement) to save on file size and improve the encode quality. By default, selected subtitles are "burned in" to the movie and can only be included in the area (720x304 in this case) actually being encoded. The black area you see on the screen is actually being added by your playback device. I don't know what the Xbox360 can play, but you might try selectable subtitles using XVID in a DIVX container: