Correct. This is a limitation of InnoDB's shared tablespace file. It would be a very expensive operation for the MySQL Server to compact the used space in the tablespace file and shrink the file. Imagine if you have a 100GB tablespace file, and you want to perform a rebuild to compact it. Typically, MySQL table rebuilds require both the old and the new storage to exist simultaneously on disk during the operation.
So InnoDB's behavior is to leave the empty space, and use it for subsequent insertion of new row versions.
Bug #1287 http://bugs.mysql.com/bug.php?id=1287
Bug #1341 http://bugs.mysql.com/bug.php?id=1341
One solution to shrinking a shared InnoDB tablespace is:
1. Backup *all* InnoDB tables with mysqldump.
2. Drop all of the InnoDB tables.
3. Physically delete the ibdata1 file at the filesystem interface.
4. Restart MySQL Server, which recreates a new, small tablespace file.
5. Restore all your InnoDB tables, which expands the tablespace file as needed.
Another solution is to use the option to store InnoDB tables in a separate file per table. See http://dev.mysql.com/doc/refman/5.0/en/multiple-tablespaces.html
If you do that, you should be able to use OPTIMIZE TABLE or ALTER TABLE on each InnoDB table that you want to shrink. This is supposed to rebuild the .ibd file for the individual table.