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Aspect ratio switching can be handled automatically using the flags that already exist in the the standards - as long as the broadcasters use those flags correctly. Unfortunately most channels would set the flag to 16:9 for everything and either hard encode the black bars onto 4:3 programs or crop it to fit a 16:9 frame. In either case the only way to get what was originally a 4:3 program to display in full screen on a 4:3 TV is to manually mess with the settings - on a case by case basis.
On the (in the minority) channels that did use the flags correctly (both OTA and cable) the set top box would adjust on a program by program basis - sometimes it would even correctly adjust for commercials in a different aspect ratio to the program and correctly switch back when the program returned. 4:3 programs in full screen on a 4:3 TV - 16:9 programs either letterboxed or center cut depending on your setting.
The Pace cable box I had even supported the wide screen switching signals so it didn't have to resize anything to fit the chosen setting. It could display everything in it's native aspect ratio and just control the aspect ratio/zoom setting in the TV. I could unplug the 4:3 set, hot plug in a 16:9 set and without changing a single setting on the cable box everything would automatically display correctly.
Of course these features only work when programs are broadcast with the flags set correctly and 4:3 shows haven't been butchered to fit a 16:9 frame.
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