"Excellent question because I just saw this rectangular shaped gasket on a website. But I don't think anyone uses those anymore."
Seiko uses a lot of the flat gaskets but they tend to crawl out of their shallow groove in the case and get cut or distorted quite a bit. Some of this trouble is because they are so thin. Most of them fit around the case back (not in a groove in the case) and as soon as the case back starts compressing the gasket you can not really tell what is happening to the gasket.
The gasket groove in the case is shallow and the gasket is thin...not a good combo imho. In this type of case the 'groove' in the case is really just a slight relief cut into the case to help position the gasket. Sometimes you can see some of the gasket sticking out before you open the watch.
Almost all gasket grooves in cases have flat sides and flat bottom areas. The correct round cross section gasket compresses enough to make it seal in the square area.
Bought an assortment of thin flat gaskets from J. Borel years ago and half were black rubber and half were gray plastic. I might use one or two a year, mostly on Seiko, Pulsar etc.
They are half price now:
http://www.julesborel.com/s.nl/it.A/id.10511/.f?sc=31&category=973256