Your first mistake is to use "native" resolution, actually. Using that leaves out one of the most important respects of the actual arcade machine's process.
While the SF2 arcade board is putting out 384x224, the monitor is stretching it to a 4:3 ratio. The artwork is actually designed around a 4:3 aspect ratio as a result, and looking at it in its original resolution actually shows a deliberately distorted image.
The next question is why you're using directdraw without hardware scaling. What is your video card, and why aren't you using Direct3D?
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Try checking the MAME manual at http://docs.mamedev.org
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