Just to add more fuel to this. I was at Futureshop the other day and they had two different versions of Castaway. One was 1.85:1 and the other was 2.35:1. I think the 2.35:1 version was a two disc SE.
16:9 is a good compromise between 1.33:1 and the widescreen ratios. If they built TVs at 2.35:1 everything except 'scope films would have to be windowboxed.
I've also read that from an engineering standpoint, when working out the widescreen format, it was simpler to take 4:3 and multiply the width by four and the height by three to come up with the new format. Tweaking it to hit 1.85:1 exactly would have been pointless, if not impossible. Overscan would likely make it impossible to see the difference anyway. Same reason that current TVs are 1.33:1 instead of exactly 1.37:1. In designing and mass-producing early cathode ray tubes it was easier to make the display 1.33:1 than to hit 1.37:1 on the nose, and that was deemed "close enough"
Given that the material we watch is going to range in aspect ratio from 1.33:1 to 2.60:1 or thereabouts, there is no single shape that is going to be "ideal" for all of it. Certainly 1.78:1 is a better choice than 1.33:1 for widescreen material, and it is probably a better compromise than a wider ratio given that we have nearly 100 years worth of films and over 50 years worth of television shows that were created for a narrower ratio - and which we'll still be watching for the next hundred years, at least.
@JohnB: To make things even more complicated, only the UK RC2 was cropped (maybe they deleted the parts that were especially offensive to the Brits )
@Brian: I think "virtually never" allowed some exceptions anyway, but the point that there is no movie, that is intentionally released in two WS ARs remains.