No you're not having a brain fart
This is an understandable mistake.
It's your background image. It needs to be at a 4:3 ratio because it exports all images at a 4:3 ratio. So when your exporting the images are getting stretched.
So what you need to do is open your background image in Photoshop and change it's height.
An example of 4:3 ratio is 1024 x 768 (the default background size).
So the ratio is 1024 / 768 = 1.33~
Now if we take a look at your image it's 920 x 421. So we need to make it 4:3. That's 920 / 1.33~ = 690
So you need to change the height of your image to 690. In Photoshop you would select Image > Canvas Size... and type in 690 for the height.
The easier way would have been to make your background image 640 x 480, 800 x 600, 1024 x 768 or 1280 x 960 in the first place but it doesn't really matter as long as it's 4:3 ratio.
Hope that helps
EDIT: Oh I didn't read you were saying that none of your buttons were labelled. First thing you should do is exit CPWizard if it's running and delete the CPWizard.ini file. Then run CPWizard again and configure it including setting your Mame exe (no exporting will work without a Mame exe set) and going to Edit->Options->Mame and setting "Mame Layout" to your custom layout file. There were changes made through the new versions which broke backward compatibility so this is likely why it's not working. If that still doesn't work post your CPWizard.ini, CPWizard.log and layout xml file.
BTW I don't think CPWizard will work with really old versions of Mame