This has to do with the product image settings in Woocommerce. If the hard crop settings are turned off it scales the images preserving aspect ratio... Then the scaled images get stretched to fit the box in the template.
With hard crop the thumbnails are cropped to the exact side the template needs... No stretching so no distortion. The full image is still preserved uncropped for the detail page.
You may find that the hard crop settings need to be on for the category thumbnails only.
To change this setting:
- Go to WOOCOMMERCE > SETTINGS > PRODUCTS
- Check if 'hard crop' is selected for the various product image sizes