Ok, GT4 has this ticker at the bottom in the tuning menu that explains the setting at hand and how to use it. But I'll post anyways for those too lazy to read it, also I'll explain it alot better than they will.
Note: this is long so for the short version just read the notes. But if you want to understand why, read it all.
You have it totally backwards. You're sort of right on how an LSD works but wrong with how to tune it in game.
This tuning is make or break with drifting so getting it right is crucial. This may explain why you keep having wheelspin understeer, lack of speed, and snap overcorrection problems. A tight LSD makes the car alot more stable, adds alot more throttle control, and will make the car hold its speed better while drifting, but locking it will mean that the car will not turn w/o wheelspin and looses some manuverability. Having a loose LSD will create the opposite effects and make the car alot more manuverable and alot easier to wheel spin but alot harder to get oversteer, too loose will cause "peg legging" or one wheel burnouts and consequently, understeer. Go buy a '83 Nissan 300zx and don't modify its diff. Then try to drift it to feel what an open diff feels like.
Also, the reason lowering your accel setting makes burnouts easier is because you're "peg legging." And the different LSD's like the 2 way doesn't mean locked all the time. 1 way means that it only works under accel and is open during decel. 1.5 way means that it is normal under accel and very light under decel. 2 way means that you have the same moderate amound of LSD affect under acceleration as you do under deceleration. In all cases the amount of acceleration LSD affect is the same.
Now back to the actual tuning in game.
Initial Torque: This setting determines the responsiveness of the LSD's application. A higher setting means more responsive and tighter at rest. (at rest meaning when no accel or decel force is being applied) I try to keep this between 10 and 30. (depending on car at hand) Setting this too high will cause the car to loose manuverability but will make drifting a little easier. This also is a factor in total strength of the LSD. Example, if initial is set at zero there will be no responsiveness so therefore you will have no LSD effect (i.e. open diff). If you set this at 60 (max) your LSD will be locked all the time and will not need to respond to accel or decel, if you do either of these the accel and decel settings become irrelevant.
Note: intial affects both accel and decel. Increasing this will make your car looser during wheel spin, but tighter all the rest of the time(i.e. understeer), and will also decrease manuverability.
Accel: This setting determines the max strength the LSD is capable of producing during acceleration. The minimum setting (5) means open diff. The max setting (60) means locked diff. I run this between 40 and 60 for drifting. Don't set it above 40 for racing! The tighter this is the more stable your car will be under wheel spin and the more throttle control you will have over your drift and more control in gerneral. Warning: locking the diff means you will not be able to turn the car under acceleration w/o wheel spin, this is why you keep it midle range for racing, lock for show drifting purposes only.
Note: increasing your accel setting will make the car looser and more stable during wheel spin. If your car feels too twitchy while drifting, increase your accel settings.
Decel: This setting determines the max strength the LSD is capable of producing duing deceleration. The minimum setting (5) means open diff. The max setting (60) means locked diff. I run this between 10 and 20. The tighter this is the more stable your car will be under braking. Warning: don't set this very high or you will create understeer while braking making braking drifts impossible. Also, don't set this to zero or you will get "peg locking" or one wheel brake or e-brake lock which will also create understeer and also make braking drift impossible.(You ever see a F1 car lock up the inside front tire? Well it happens in the rear too) A low value will be perfect for locking both rear wheels with e-brake application or large rear brake bias w/o out creating understeer while braking.
Note: increasing this will make the car more stable under braking, but too much will create understeer. Also, none at all can create understeer as well.