I think if you go back through challenges, there are a number of images that used non-rectangular images inside the rectangular image space. Sometimes, in fact, this is unavoidable; how do you accommodate a hemispherical fisheye image which is round by definition into a rectangular space for instance?
The thing to avoid is making the transition fuzzy enough that the outer perimeter is considered a vignette, not a border. I would not go much fuzzier than the example posted.
Edit for typo
ETA: I entered this many years ago, under more restrictive editing; see the fisheye comment above.
Message edited by author 2011-06-09 17:03:24.
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