As mentioned above it is not fraud as you could put 800 Meg of data on there if you wanted. Just that you would have no error checking and no other applications would be able to read them.
Nero defaults to mode 1 when it is burning a data CD as it assumes, usually rightly, that you want to make sure the data is correctly written. I believe you can set to mode 2 if you want but then there is no guarantee that the car CD player would read it.
Think you missed the point about the amount of data stored on the disk though - Nero still writes 800 Meg to a CD in mode 1 but it consists of something like:
2048 bytes of user data + 288 bytes of error correction
the 288 bytes are transparently inserted and removed from the data stream as you use the disc.
On top of that you lose some of the sectors due to the format that is laid on top of the data - you need to know the names of the files and where they are stored etc.
Before Nero starts writing the disk it checks and knows what size data it can write in each of the modes.