If you look at your original file on your computer screen and then draw the imaginary shape of a standard 4:3 television around it, making sure that the sides of the imaginary television touch the sides of your file, you'll notice that there is a lot of negative space above and below where the file would appear on the imaginary television set. In the world of Standard Definition television there are only two ways to deal with this. The first is by inserting black over the negative space- which is what iMovie is doing to the final output of your file. The second is to take the top and bottom of your file and stretch it till it completely covers over the negative space- this is an anamorphic picture and you won't like how it looks. Everyone is super skinny.

The reason the black bars are GINORMOUS is the file you are using has a super wide aspect ratio. You've probably seen this before with certain movies. Tarentino films are often shot with a very wide aspect and when viewed on DVD on a Standard Def 4:3 television they are presented with more black at the top and bottom than your average movie- which are usually 16:9. It's the same situation here. If your file had a less severe picture ratio you'd have less black at the top and bottom.