The stretching is occurring on the displacement, it's not due to the Painted Shader. The Painted Shader is basically just dealing with the surface that exists there as it is (already very long, stretched polygons due to the vertical displacement), it can't "fix" the existing stretching issue. So you need to find a way to make a square like this without the stretching if you want the Painted Shader to work better here.
- Oshyan