If the picture doesn't look squished or stretched, leave it the way it is.
Letterboxing is pretty normal.

It's a documentary shot by my associate that was produced at DiscMakers but I'm working with the master. If I watch it on my monitor it shows just the typical letterbox which I described with the 1" (not an exact measurement) of black above and below. But when I preview the video captured it has an added 1" above and below (of grey) that makes the viewable video much smaller than a typical letterbox.

Sounds like it was widescreen source captured in a 4:3 screen format.
Is the camcorder set for the correct format?

+1 musicvid 10

The only setting I see on the camcorder is A/V-DV OUT and I can either turn that on or off and that's it. I don't see where I can change any settings nor have I ever changed any settings since I first used this camcorder (Sony TRV-18) as an interface from the DVD player to the computer and Vegas capture. I don't remember in the years past the video being less than a full screen and letterbox if it is letterbox just not the extra grey letter box I am now getting.

This sounds familiar but I am not sure.

If you have the DVD player set up to play out Widescreen, change it to 4x3 and see what that does. It seems like it is doing a double widescreen.

Just an idea.

There are 2 reasons you would be seeing a letterbox.

First, it was shot at 16x9 but was intended to be viewed on a 4x3 TV. In this case, the 16x9 image is shrunk to fit in a 4x3 aspect. To view correctly on a 16x9 TV, you would need to zoom up the image.

or second, it was shot as a cinema aspect and programmed for 16x9 with letterboxing to retain the correct viewing aspect. In this case, you will have additional black at top and bottom when viewing on a 16x9 screen.

This is truly odd as it is you are right, it is doubling the widescreen function. Looking at it on the television this disc which is a commercial disc is full screen and looking at it on the Sony Vegas Capture Video monitor it is full screen but on the camera itself it indeed is in widescreen / letterbox format. When it records it is letterboxed and I have been through every available setting on the DVD player and the camera and I cannot change it. I am guessing since this DVD player is what I have used for the last couple years that it is set that way and I apparently cannot change it. I don't do this type of thing all that frequently so I guess this is how I am stuck. For the record the DVD player is a Sony BDPS380 BlueRay Disc Player - #1236390. Maybe the player I used before (which did not have BlueRay) didn't do this and I've just ignored it since I started using this player as infrequently as I do this type of thing. Thanks for your input.

Just curious, but why are you doing all this instead of just ripping the files from the disc over to your hard drive?