E_COMMERCE In a nutshell - SSH tunneling does work after all, but the program seems to be doing something odd with caching screen sizes. At least, that's how it looks here.
All this time I thought SSH tunneling was broken (see my various posts here if you care). It turns out there is a bug, but it's something else entirely. I downloaded the most recent version, saw the same behavior and was set to create another screen shot to illustrate. However, the stretched screen of my destination computer was in the way, so I changed it to "half size" - and the aspect ratio and size were fixed! I changed it back to full size, and now it snapped to the correct size (1024x768). All further connections to that computer have been correct ever since. Somehow it was picking up my local resolution (1440x900) from somewhere (a previous connection to something else?), which was not correct for what it was connecting to at the moment.
I'd like to say this is closed, but when I attempted to connect to a different VNC host (1400x1050) over the same tunnel, a similar scaling type of bug reappeared when the destination screen was set to "Actual Size", but strangely not when set to "Half Size" or "Double Size". Looks like something odd is going on with how the screen size is being handled.
(Version 0.96.62)