Welcome oldboots, glad you've found the tool you need for the job
The results you're seeing are just "squished" because how an image appears in text is entirely a function of the font you use. By default REXPaint is using square fonts, but when you view the same thing in a text editor you're almost certainly not using a square font, but a rectangular one. What you can do in order to draw something that will look more like the final result is use a non-square font. The REXPaint ANSI download, as well as the Resources page on the website, both have a number of more typical vertical fonts that might suit your needs.
(And I'm not sure how pertinent it is, but maybe you could mention what your final goal is here.)
