Another example, I have a 20" 3x4 that runs at 1600x1200 and a 24" widescreen that runs at 1920x1200, so the vertical resolution is exactly the same.
I have the exact same setup. I love it.
I'm surprised Windows took so long to implement multiple desktops. I'm assuming Vista has it? but there have been third party programs for XP for years. Resizing windows is a hell of a lot of work, but you only realize this after you stop doing it.
With my setup, I have 4 desktops and 2 displays, so that's 8 desktops worth of space. On the first I have my calendar full screen on 1 display and my chat windows and music, nothing overlaps.
On the second I do my work, usually vim maximized, and on the right I have a maximized Firefox/Firebug.
On the third I have a fullscreen of the log file of whatever I'm working on so I can see the output in real time, and on another screen I have a debugger.
On my last screen I put shit that I just have running but might need to glance at, like torrents, things I plan to get to eventually (firefox windows, ebooks, etc).
Another neat thing I do is, if I ever need to use Windows (I have it in virtualbox), I can run it fullscreen in another display, so 1 display is Linux and the other is Windows, and I can use them both simultanously.
Switching desktops is alt+F1-F4. I never need to use the mouse except for web browsing. I'm running Ubuntu but this setup can be had in OS X as well. I used to use Deskwin in Windows XP, it's ugly but works perfectly. Just set shortcuts and hide the hideous pink/blue window.
WickedFire shouldn't look "squished." It has a fluid layout. The lame thing about widescreens and fluid layouts is that a column of text should only be stretched across so much, before it becomes a nuisance to read. You should be able to read the entire text without turning your head left and right. That's my biggest gripe with wide screens but it was also a problem with 4x3.
It's more of a site design problem. I get around it by having shortcuts for toggling window size to desired width for reading (800px width of text, max, not counting sidebars and avatars) and maximizing. To do this you can use Devilspie, I'm not sure what OSes other than Linux it's available for.