But I solved the problem. Hope this may help others.
I didn't have to do anything to my m2v 1920x1080 files. After checking my sources folder I realize my menu was 720x480 instead of being 1920x1080.
There are no settings under the menu option in Encore to correct this, what I had to do was to create a blank document in photoshop with the correct size (1920x1080) then in Encore go to file-import as-menu and select the photoshop file.
This create a blank menu in Encore with the correct size and when I built the image and played back everything was ok.