SMA PLT QUESTIONS MODE C ERROR LIMITS. ACR CLAIMS CLOSE PROX WHEN ATC SAYS MODE C SHOWS 500 FT.

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I CROSSED THE PATH OF ACR FLT; AN LGT; INBOUND FOR EWR; NJ; THE ARPT WHICH I HAD DEPARTED FROM JUST 20 MINS EARLIER. A PLT ON THAT ACFT HAD RPTED A 'NEAR MISS' TO THE CTLR INDICATING A SEPARATION OF 200 FT VERTICALLY ACCORDING TO HIS TCASII. THE METEOROLOGICAL CONDITIONS WERE VFR CLR WITH NO CEILING AND 25 TO 30 MI VISIBILITY. THE ALTIMETER SETTING WAS 30.73 AND; AT MY ALT OF 6500 FT MSL; THE PRESSURE ALT WAS 5750 FT. THE TEMP AT ALT WAS 1 DEG C. I WAS HEADED TO DCA ON A VFR FLT PLAN. I WAS LEVEL AT 6500 FT MSL TALKING TO NY APCH ON FREQ 128.55. I WAS RECEIVING VECTORS TO THE ROBBINSVILLE VORTAC; MY FIRST WAYPOINT ON THIS TRIP. I KNEW THERE WOULD BE OPPOSITE INBOUND TFC FOR EWR COMING TOWARDS ME DUE TO THE RWYS IN USE AT EWR -- THOSE BEING 4L AND 4R. KNOWING MY POS FROM FLYING IN THE AREA LOT; I KEPT PARTICULAR ATTN OUTSIDE THE COCKPIT FOR TFC AND SPOTTED THIS PARTICULAR ACFT BEFORE THE CTLR EVEN CALLED IT OUT TO ME. I RESPONDED WITH A TALLY-HO AND HAD A VISUAL ON HIM THE ENTIRE TIME. WHEN OUR PATHS CROSSED; MY BEST JUDGEMENT WOULD SAY 500 FT SEPARATION VERTICALLY; WHICH IS WHAT IT WAS SUPPOSED TO BE. THE ACR WAS AT 6000 FT MSL. OUR POS WAS 5 DME NE OF RBV VORTAC OFF THE 035 DEG RADIAL. AFTER WE PASSED EACH OTHER; A PLT OF ACR FLT SAID 'THAT SMA WE JUST PASSED WAS NOT AT 6500 FT AND I'M RPTING A NEAR MISS. CAN I HAVE HIS TAIL NUMBER?' THE CTLR RESPONDED WITH 'WHAT IS THE REQUEST FOR?' THE PLT SAID 'MY TCASII IS INDICATING A SEPARATION OF 200 FT AND I NEED TO FILE A RPT.' THE CTLR OBLIGED AND GAVE MY TAIL NUMBER. AT THIS TIME; I IMMEDIATELY SAID 'THAT IS A NEGATIVE! MY ALT IS 6500 FT AND THE ALTIMETER IS 30.73.' THE CTLR RESPONDED TO SAY I HAD DONE NOTHING WRONG AND MY MODE C WAS SHOWING 6500 FT. I CALLED HER ONCE I GOT ON THE GND AT DCA AND SPOKE TO THE SHIFT SUPVR. HE TOLD ME TOO WORRY AND IF I RECEIVED ANY CALLS TO REFER THEM TO MR X. THE WORKING CTLR WAS Y. THE REASON I AM SUBMITTING THIS RPT IS TO BRING UP A COUPLE OF ISSUES. ONE BEING THE ACTUAL ACCURACY OF TCASII; THE PLT'S RELIABILITY UPON THIS EQUIP INSTEAD OF HIS OWN EYES; ESPECIALLY IN THE EXCELLENT VISIBILITY WE HAD; HIS JUDGEMENT ON OUR ACTUAL SEPARATION; AND HIS ACCUSATION RIGHT ON THE RADIO! I HAVE ALMOST 550 HRS TOTAL TIME WITH MULTI-ENG PVT. I WOULD NEVER ACCUSE SO QUICKLY OVER THE FEDERAL AIR WAVES. HE IS SUPPOSED TO BE 'PROFESSIONAL' AND PROBABLY HAS AT LEAST 2500 HRS TOTAL TIME. I WOULD LIKE SOME FEEDBACK ON THE ISSUE OF TCASII; HOW MUCH THE PIC SHOULD RELY ON IT IN VMC WHEN HE SHOULD LOOKING OUTSIDE; INSTEAD OF PLAYING VIDEO GAMES ON A FIRST GENERATION PIECE OF EQUIP.