IPod Nano wont hold 500 songs

I have a 2GB iPod Nano, it should hold 500 songs, but its actually only like 1.8GB which is 450 songs, no problem.
These songs should be like 4 minutes long. I have only 25 songs on my iPod, they're like 4-5 minutes each. In my iPod, in the "About" menu, it says I have 1.3GB of space left, which means, (using simple math and proportions) that my iPod will hold about 125 4-5minute songs, give or take like 25. That is rediculous, how did that happen??? I want my full 450, or at least 350, not 125, could someone please explain *** is going on? Can I convert my songs to another, smaller format like MP3 (currently they're in MPEG4)

The "500" songs claim is made based on a song of certain length recorded in a certain format at a certain bitrate. Your capacity will vary according to the length of the song, the format it's in and the bitrate in which it was encoded. Apple uses AAC for it's testing and promotion purposes, at a bitrate of 128Kbps.
If you find that your iPod doesn't hold the "proper" quantity, re-encode them in a different format. I encode my music as Mp3's at 192Kbps. I find that this is an acceptable level of quality versus size for my needs, yours may differ. My current library has 3,302 songs for a total of 17.01GB.
Follow the instructions in teh above posts to convert your library to a different format.
One warning, if you have any songs purchased from iTMS, you will have to burn them to disc and reimport them first. ProtectedAAC files cannot be converted as other formats do not support the Fairplay DRM that Apple uses.

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