Your background graphic may look squished or stretched if it has a dramatically different aspect ratio from the label you're putting it on and you added it to the label as a "stretched" background. When you insert a picture as a stretched label background, it will get either stretched or compressed to fit the dimensions of the label you're putting it on. If your image is twice as wide as it is high, for instance, and you try to make it a stretched background for the CD jewel case front, which is square, your image may appear squished.
The easiest way to avoid this is to add it as a normal (non-stretched) background. To do this, just double-click on the label"s thumbnail.
Alternatively, you can add your image to the label as a foreground image rather than as a background, so you can move and resize it however you like. You can do this by just clicking on the image's thumbnail and dragging it onto the label. You can then move & resize it so that it covers the entire label. It will keep its original aspect ratio unless you right-click on it and uncheck the "maintain aspect ratio" option. You can click the "send to back" button on its toolbar to make sure it appears behind everything else.
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