Well, that is like saying that movie theaters need to shrink the size of their screens because I can start to see the grain of the film. Do you go to movies in the theater and curse them for not refocusing the picture onto a smaller screen so that the film grain will be eliminated? I seriously doubt it.
I do know about the grain effect that you are talking about, but I also know that there will be greater detail in the picture overall with an HD picture utilizing the full 16x9 frame than if you "letterbox" it into a smaller area. You may be able to see the grain, but there is a lot of detail in that image you will lose with a OAR ratio version of films.
Just for reference sake, I have a 100-inch diagonal screen projected from a Sanyo PLV-60HT.