It's entirely possible that Kino were given bad materials to work with--I have no way of knowing--but they ultimately chose to release the films in the aspect ratio they did, so as far as I'm concerned they're responsible for the quality control problems with discs that they put their name on. Copying someone else's mistakes (I don't know; I've never seen the Euro discs and don't know if Kino's are ports) isn't an excuse. No one made Kino release them in the wrong ratio. (The British discs of the so-called glaciation trilogy seem to be 1.78:1 which I would chalk up to lazy 16:9 encoding.)
But I'm also not sure if the idea that Kino only deal with video masters is completely correct. It could very well be the case with some or even most of their dvds--and could even be so in this case--but they also distributed prints of these films in the American theatrical market at the time of the dvd release, so obviously they had access to prints.
The films Kino released should be 1.66:1. I know from seeing them screened that 1.85 is not correct. It makes the subtitles appear as if they were printed too low in the frame, forcing the projectionist to shift the frame in order to get the subtitles on screen, very obviously chopping off the top of the frame. This may be less of an issue with player generated subs on a dvd, as the cropping could occur equally on the top and the bottom, but that doesn't make it correct so much as less obviously wrong. I also have a recording of
Benny's Video from a European television broadcast which is clearly in 1.66:1.
Ironically, the two Haneke films which aren't in 1.66:1 weren't released by Kino on dvd.
I'm terminally sick of films being forced into 1.85:1 for the American market. I'm sure there are exceptions--there always are--but 1.85:1 is predominantly an Anglo-American aspect ratio. None of the European directors whose work I admire has ever worked in this ratio, yet their work is routinely shown in it.
All that said,
The Castle was, after all, made for television, and it appears that in this case 1.78:1 is the correct ratio:
DVD Times review