Rob, of course everything you said was 100% correct.
My discomfort with putting photos and catalog in the same folder is that
- This might give the original poster a false sense of security, that then you could move photos around outside of Lightroom, said moves being entirely within that folder (which I think was implied in the question); and in reality you can't move photos around at all outside of Lightroom (unless you know how to reconnect).
- I have seen a few people do this (in this forum), put previews, catalog file and photos in the same folder, often named "Lightroom"; and then guess what happens if you try to synchronize the folder named "Lightroom"? The synchronize command then imports all previews (which are just JPG files) as well as un-imported photos. Not good.