Typically, the dead space is just that. Dead space. You wouldn't count this space. Your water added will be what your recipe calls for above this dead space, so like you say, your mash is sitting in exactly what you were shooting for in your recipe you worked hard on. You also worked hard on hitting your strike temps too, and not accounting for the losses in your mash by not adding up water above the dead space will effect that too. But if you are making great beer, then by all means keep doing it that way!
Another way I like to explain this, and of course this is a very extreme example, lets imagine that you had five gallons of dead space, in a five gallon batch...