Hi there and welcome to the forum.
It's a very common thing to do, and your suspicions are correct. You are on a 1Mb contract and getting 1Mb speeds because Tiscali are rate-limiting your connection to 1Mb, even though you're connected on 2Mb. The reasons are to do with cost. ISPs have to pay BT wholesale for your broadband connection. They also have to pay BT for any speed regrades e.g. 1Mb to 2Mb etc.
Now you're on a 2Mb connection, Tiscali could upgrade you to 2Mb without involving BT. They probably took advantage of the bulk 2Mb speed upgrades for £5 a time, rather than the normal one-off cost of £11 per time.
However, if you're only paying for 1Mb, and 2Mb is unstable on the line, then theoretically Tiscali should easily be able to request that you be downgraded to a 'real' 1Mb connection. Getting them to accept this and do that, however, might be more than a bit awkward.
Have you followed all the suggestions on the
http://www.kitz.co.uk/adsl/lowSNR.htm page to see if you can improve your SNR margin, even by a little bit? Doing stuff on there like filtered faceplate, ringwire etc.. might push your SNR up enough that you can quite comfortably cope with the 2Mb line.
Hope this helps
