Technical background: since the time warp is purely a filter, it has limited interaction with the timeline. It can only process frames handed to it & pass them back; it has no ability to interact with editing operations.
OTOH, if you try the time remapping feature, this will resize the length of the clip the way you're expecting. Also, FWIW, the time remapping should render faster than the time warp filter. Unless there's an explicit reason that makes you use time warp, I would stick with the time remapping feature.
If you're unclear on how to use the time remapping: check out this link.
Yes, in theory, you can get better results with pixel motion. In practice, however, I've found it to be painfully slow, and for all the finagling, I don't think it's worth the trouble vs the ease of use with the time remapping. (Side note - the frame blending algorithm used by the time remapping has also been improved in CS3, btw.)
That being said, it's all relative to the source footage - I imagine that if you have some really fast-panning footage with a lot of field judder, it might be worth trying to use pixel motion. YMMV.