Pixel aspect is usually the nicest option, in most cases, on a modern display. Some games can look squished because the ppi is denser than an older crt display. I just adjust those that I think look wonky by choosing an alternate aspect, or use the slider controls to adjust the image size manually, mame saves your changes from the video menu. In the end, you are the only person you have to please, just do what you think looks best.
Are you using direct3d with scanlines overlay (ScanRez2 is the best overlay in my opinion) ? its quite authentic looking...