Try these:

You might set both HandW on an Image control to Automatic; if that does not work then check the ScalePictureToFit box and that might solve your problem with scaling or you can note the size of the image you place into Media ... perhaps 300 x 250 pixels and set H and W pixels in the Image control appropriately
You might get more specific help if you can show a screen capture of what is perplexing.. To keep an image from "stretching" you have to maintain the HxW proportions. Say the original is 300 x 125
and you want to downsize it by half...the dimensions would be 150 x 62 (because 125 cannot be divided by 2 without a remainder and pixels require integer values).
If you know your phone screen size in pixels, you can make your image exactly the same if you want to use the image in the background. Most inexpensive phone screens are 320 x 480 pixels; the screen on your device might be different.
....there were some hints; try experimenting a little more. Remembering that using AI2's layout controls is NOT necessarily intuitive and you will need to learn what happens when you place an object into an arrangement because what happens can be affected not only by the dimensions of the object you place but also with the scaling you select for the arrangement (Automatic, Fill Parent, set exact pixels or a percentage of screen).
Regards,
Steve