I shot standard dv with the Z1U in squeeze mode. I would like to convert the squeezed footage to 4:3 ratio in Final Cut 5. What is the best way to do this?

Just cut your 16x9 footage into a standard 4x3 sequence. It will either come in letterboxed (if anamorphic was already checkmarked for the clip) or squeezed.

Either way, just set the scale of each clip to 130 and the Distort Aspect Ratio to -30. You will now have a "centre-cut" 4x3 that you can "pan and scan" left or right depending on composition.