sounds like your File is anamorphic, or at least FCP thinks it is.
Right-click on the PSD in the bin, then item properties..., then format.
(Shortcut: Apple + 9)
Un-check the tick behind "Anamorphic", and voilla, no longer distorted.
Thanks for your help but nope anamorphic isn't checked. I tried checking it but still is distorted. It only does this to PSD files. JPEGS come in ok.
Also when I update a PSD file if its not exactly the same size it distorts it again. I'm gathering this version of FCP just isn't very photoshop friendly?