It is controlled by CSS (the exact file is in
wp-content/plugins/background-manager/resources/css/pub(.dev).css in case you're interested - if WP_DEBUG is
true, it uses the one with "dev" in the filename).
Currently, the width of the browser window takes precedence and adjusts the image according to it. But to keep the entire screen filled, it also stretches the image height to 100% (otherwise leaving an "empty" bar). This particularly causes that "squishing" on very wide images.
So if the images are generally wide overall, this can be changed by modifying
This would essentially reverse what it does now (and so, narrow images could end up looking "squished" - if images are large enough, you can remove the
height: 100% portion) - Hint: use the Custom CSS metabox.
Obviously this is a temporary fix, as the whole idea is to do no file editing at all ;) I'll look into better ways to keep the aspect ratio correct at all times, whilst ensuring the entire screen remains covered.