Only half of iPod Shuffle memory fills up -- Memory Failure?

When syncing with iTunes, I'm able to load 485 MB worth of songs ("Enable Disk Use" item is OFF, so all memory should be available for music).
iTunes and the Finder both indicate that the iPod has a capacity of 967MB. Why can I only fill half of it in iTunes? Could one (of two or more) memory bank(s) failed?
I've tried all the usual troubleshooting techniques - resetting iPod, checking for updates, restarting Mac, etc. Has anyone else had this problem?
Thanks.
-- DaveR

I'm having a similar problem, except mine will increase the number files everytime I press autofill. The first time I synced the Shuffle, it loaded 750MB, then 820MB, then 940MB. Now it won't let sync anymore. I have it converting everything to a bitrate of 128, so I know there's sufficient space.
It only seems to have done this, since I upgraded to iTunes 7.5

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