The main reason I'm not sure what each VR mode does, is because I bought this lens used at an unbelievable price. It didn't come with a box or manual, unfortunately. This is where the confusion sets in, because there isnt a lot of info on what each mode is, for this lens, on the net. This was one of the first lenses to ever get VR, so the tech is fairly old compared to the newer VR models.
Just to clarify; In mode 1, VR does not have a visual effect in the viewfinder at all, but only works during the shutter release. In mode 2, VR is on at all times, while you have the shutter button depressed halfway and obviously during the shot.
According to Thom Hogan, if VR is used at shutter speeds faster than 1/500th sec, VR can cause blurry shots from frequencies being slightly off. Sometimes it doesn't blur the shot, but sometimes it does. If I turn VR off at these shutter speeds, I get a vastly better keeper ratio. What he stated on his sight is exactly what I am seeing and the conclusion I came up with, before I even read this article. Maybe it effects the older VR and not the newer versions.
The 80-400mm 4.5-5.6 is a amazing lens, as long as you know its limitations and stay within them. It's not my 80-200mm 2.8(or 70-200 2.8 VRII), but when I need that extra super tele range, it's there and can deliver super sharp images with great contrast and very little chromatic abberation, as long as you're shooting in the daytime with plenty of light. The D7K's high ISO performance does help make this lens a little more useful then it otherwise would be.