Images inside ebook stretched after converting

This is driving me crazy! I converted an AZW3 file to an EPUB and the Calibre viewer shows the images just fine. But when I send that EPUB to my Kobo device, the images are stretched and resized. Why??? I've also tried sending it as a KEPUB and that doesn't change a thing. Tried converting it to a KEPUB first and sending that to the device, also no change. The images look fine on my Kindle Paperwhite, but I can't them to look right on my Kobo!

How do you convert an ebook so that all images (not just the cover) keep their aspect ratios?