The reason for the extra space on top and bottom in 3D Classics is that they're displaying in a 256x224 window at the game's original 1:1 resolution. But in the VC emulator, they actually display an extra 8 pixels on the top and an extra 8 pixels on the bottom that were cut off on the original NES versions, bringing the vertical resolution from 224 to 240 to match the 3DS screen.
You can confirm this by looking up some screens from Mario and Zelda, where, for example, in Super Mario Bros on NES, you could only see 1 and a half tiles of brick at ground level, but on VC you see 2 entire tile levels, and the score text has 8 pixels of extra sky above it. Similarly in Zelda, screens with bushes along the bottom only showed the top half of the bushes on the NES, while they show the full bushes on VC.
As said above, the blur comes from horizontal stretching to correct the aspect ratio so that games don't look horizontally squished compared to playing them on an NES. Personally this is one case where I would prefer to have the option of 1:1 pixel ratio and lose the original aspect ratio, since it's really not different enough to notice the "squish" but the blur is certainly noticeable.
