The size of the thumbnail image on the latest news widget is designed like so; it isn’t considered as an issue. The final size of the uploaded image will be hard-cropped and downsized to 550px x 400px if it is larger than the specified target size.
In order to meet your objective, you should change its functionality to maintain the actual image size and let it adapts with the post item container. Please edit the widgets/fp-latest-news.php file. Then replace this line:
<?php the_post_thumbnail('sydney-medium-thumb'); ?>
<?php the_post_thumbnail(array(9999, 9999)); ?>
As information, you should do this modification again once you updated the theme in the future due to the files will be overwritten.