I do not own Fritz, so I cannot help you with that. I share your opinion, it plays nowhere near 1850.
This is a common problem when you don't set chess engines at full strength. Some engines occasionally pick the 2nd or 3rd "best move" to mimic lower strength, while only the 1st move wasn't losing on the spot. Downside is also that these blunders can look inhuman, as the computer does not know when it is a hard to spot blunder (which can be human), or completely bad (e.g. first game 11...Bxf2+??)
What you could do is set the engine "at full strength", but only allow it search for x ply deep. That should at least prevent these horrible 1-move blunders.
I recently got Fritz for Fun 13 as a download off Amazon.com. I've used older versions of Fritz (before the Windows 7 updates rendered it obsolete) so it wasn't so new to me.
I recently decided to start playing some 'rated' blitz games against Fritz, to see how my rating stacks up against a CPU rating. I set it at 60' rapid mode but played it like a 5' blitz game (for me - CPU responds near-instantly), and it's a rated game, so you can't just stop the game and do a takeback, you have to resign it or win/lose outright.
I'm only a lowly 1250ish blitz player here, so I was more than a bit shocked to promptly beat Fritz set at 1850 level 3x in a row quite easily. I would guesstimate that Fritz's play level in these games against me was equal to that of a 1150 on chess.com at 5-minute blitz.
Am I setting the CPU up correctly?
Here is an example game I just played - I was white, and Fritz actually resigned the position in the midgame! I'd estimate the level of play at 1150 or 1200 at best compared to a chess.com 5-min blitz player.
The time control was set to 60 minutes but I used up less than 3 minutes of my clock time to win the game.