I am using ArcGIS for Desktop 10.1. I am trying to georeference a Google Earth image in Christchurch area, New Zealand. I am using some CGPs I have got from this image (their Google Earth coordinates), but since the building I need to use to pick up the CGPs is still under construction it results only in the lastest satellite image and the resolution is not very good. The issue is that once georeferenced, the image is a bit squeezed vertically from the original one. I am using WGS84 as datum.
WGS84 is a geographic coordinate system* (ie spherical or ellipsoidal), which doesn't work very well for displaying images. Because images/rasters are typically based on square pixels, and the 'length' of a degree of longitude is greater at the equator than at the poles, there is significant distortion introduced in an image in a geographic display - more so the closer you get to the poles.
As Michael points out, Google uses a special projection in their applications that minimizes distortions when displaying in 2D based on where you are in the world you are viewing. You would likely want to use a projected coordinate system (which is planar) such as a UTM zone to display/work with your image. The below images illustrate this using shapes. I work with a semi-regular grid that is supposed to be square and appears so in a local projected coordinate system (ignore any rotation or slight offsets/angles that's just the nature of the grid).
However, if I change the projection to a geographic one, note the squares become rectangles wider than they are tall. This is at about 40 degrees north latitude.
This is pretty much the same thing that happens to imagery, since you can consider pixels in an image to be cells of a grid. If you're georeferencing using lat/long coordinates, you can of course do so in a GCS like you have. But to see the image without the distortion (or at least less of it), you'll want to reproject to a PCS.
*Ok, technically it's a datum as you say, but can also refer to a GCS.
