You're right, you need to make a folder. I have about 3 of these now and when I worked with the first one I could only get about 500 to 600megs on it before it said it was full. Despite Windows explorer saying 400+megs were free. I contacted support and received dumb answers like I need to flash the firmware. I did, it didn't help because it was not the solution.
The numbers are fuzzy because it seemed to be affected by how long the titles were, ie how many characters in the name, tag info etc. The Root folder can only contain so much data... which in fact is less than the 1gig capacity. The solution is to create folders. Folders do not have that limitation. Then within any folder you can max out your capacity if you want to. My gut feeling is that this goes back to the old DOS days.
To make a folder, use Windows Explorer, highlight your Zen Nano on the tree on the left. Then from the menu above select File, New, Folder and then name it. For my needs I make a music folder and a book folder, or two. At Christmas time added a 4th folder and put all my Xmas music in there.
Let me know if you need more direct information.
I recently purchases a zen nano plus and loaded music from my windows media player, that I had accumulated. When I use the scroller it shows that the songs are in the "root." I am concerned that I won't be able to max out the 1gb capacity unless I create folders. If this is true, how do I fix the problem?