Sorry this took me ages to write and then I forgot to post it 
Please don't be upset by the thread, scarednoob. I wish I had the energy to go through and debunk every single rubbish myth with no evidential basis at all on this thread but there are too many. Please be assured that 99% of them are totally nonsense.
I can tell you that there is no basis for the curved spine theory. The oxygen saturations one does have a basis, but it's not significant enough to be a huge risk you need to worry about. I'll try to explain.
Healthy normal oxygen saturation levels are anything over 95%. Because of the position of a car seat needing to be 45 degrees or steeper (to protect against the forces of an accident) this can sometimes result in a chin-to-chest position in the car seat, as you know. When babies get into this chin-to-chest position it can reduce their oxygen saturations, over a long time, very slowly. The studies which have been done show that it's extremely rare for them to dip below 80% in a two hour period (most remained in the 90s) This is reported as "significant" but significant, here, does not mean dangerous, it just means statistically it's significant ie it's definitely a change, and not just a random fluctuation. It's also important to note that these studies were performed on two day old babies - older babies are much less likely to have difficulties.
There are US studies which show that the dangers mainly pertain to premature babies or babies with abnormalities which affect the respiratory system. In fact this is so widely recognised in the US that premature babies routinely undergo a "carseat test" before they are allowed to leave hospital. The risk is not considered significant for full term babies.
Babies slipping into an oxygen saturation range in the mid-80s is (a) rare, (b), likely to happen in the second hour rather than the first and (c) not at all life threatening. (In adults it results in minor temporary reduction in attention.) The problem happens either when parents are leaving babies to sleep in car seats for much longer periods, such as overnight - this has not been explicitly tested, but the information we have suggests that this would likely result in much further reduced oxygen saturation levels which are actually dangerous. The other problem would be if you are using the two hour limit repeatedly all day every day. Again, we don't have actual concrete data on babies, but people who are consistently experiencing oxygen saturation levels in the mid-80s due to heavy smoking and/or medical conditions (ie, all the time, not once a day or once every few days) show long term effects, but these are minor, and we don't know if they are caused by other factors (it could be correlation e.g. a problem caused by their illness.)
I would not sit and put your hand under his head to hold it up. Partly because this isn't necessarily helping with the problem, but partly because think about what would happen in an accident - your hand would become a missile and that close to his face, is not particularly safe.
Instead here are some things that you can do to help reduce the risks (and hopefully your anxiety! :)) - note you don't need to do ALL of them at once but it might help to have something to do.
- Consider investing in a lie flat car seat such as the Baby Safe Sleeper (but only if this is practical and affordable for your family)
- Use the newborn insert if one came with your car seat as this gives a flatter lie. (Don't be tempted to fashion one yourself or use a third party one. These can make the harness fit too loosely.)
- Avoid long car journeys as much as possible - consider postponing longer trips until your baby is able to hold his/her own head up and is less sleepy.
- While your baby is still newborn/tending to fall into the chin-to-chest position, if you do go on long trips aim to stop every 90 minutes to 2 hours and remove them from their car seat. A few minutes is fine.
- If your baby is older and can hold their head up, it can help to plan car journeys for when they are awake, and keep them interested and looking up at you to avoid the chin-to-chest position. (If your baby isn't one of those who finds the car an instant sleeping pill OR one of those who screams constantly when awake in cars!)
- Use the car seat only in the car, as far as possible. Avoid using it at home or on a travel system unless for a short time and for a necessary reason.
- If you do use the car seat at home or as part of a travel system, try if it's possible to position the car seat at a more reclined angle, 30 degrees rather than the 45 which is necessary for safety in the car. Studies on premature babies showed that this positioning resulted in normal oxygen saturation levels. But positioning a car seat like this in a car will not provide protection in a road accident.
- If you use the car seat at home or as part of a travel system consider taking the baby out for a few seconds while transferring the car seat, bearing in mind this might completely negate the point of using the car seat (ie, use common sense here).
- You can gain a quick assessment of your baby's general respiratory rate (related) by counting the amount of breaths they take against the second hand of a watch. If they are breathing more rapidly than once a second, stop the car as soon as safely possible and remove them from the car seat. Anything from 30 to 60 breaths per minute is normal for a newborn.
- Another warning sign you can watch or listen out for in the car seat is grunting. Occasional grunting and wheezing is normal for newborns but persistent grunting with every breath is a sign that they aren't able to get enough oxygen in fast enough. Again, stop as soon as it's safe (next services, not hard shoulder) and give him a break from the seat.
And finally - do consider seeing your GP if your anxiety is preventing you from relaxing and enjoying your baby. It sounds like it might be localised to this issue, but just in case. :)