You're right. It does included cached songs in that count.just to add to this, I just tried this on my iPhone 5 over LTE and it did download the songs as confirmed by the song count under the About section in Settings.
Bummer. Hopefully one day they'll allow for streaming at least as an option.
One thing I'd like now is a "Purged cache music" button somewhere in the settings. You can do it now on a song-by-song basis (swipe-delete), but you have to remember what songs are cached, and there's no visual indication that a song is cached unless you turn on Airplane mode and find that it's still there.