I dunno why it does that, but it shows up like that in my iphone 3gs 16gb also...and in the past when i had a 2g ipod touch. You don't actually have that much more free space, BUT if you really want to find out the hard way you can try to fill up all that space only to find out you really do have about ~16gb of space only.
Also swirly blurring is not the best kind of blurring, what happened to just putting a black bar over the info you don't want to show?