Isn't Factory Reset exactly the same as wiping /data and /cache?
On a non-rooted device we can group the partitions into two categories: the ones that can be affected by the user during normal runtime, and the ones that can't. The ones that can be are data and cache. The ones that can't are system, and boot. (Plus  recovery on some.)

"Factory reset" here means that the partitions that are affected by user activities are wiped clean. Thus when the user performs a factory reset, she is greeted with a phone that has no user data on it. If she updated her phone via official methods the updates are still there! So not even stock devices are reset to their factory state!

With the above in mind, let's look at custom ROMs. When you flash one, the updater-script wipes your system partition, then copies the contents of the zip there. What was previously there is now gone! There's no way you can get back to where you were before if you don't have a backup or an original system image.  

Now, when the user boots, technically, most everything is the same. During normal operation she can still only modify data and cache. So if you perform a factory reset it only makes sense to wipe these. Remember the original rom is now long gone!

You're right that the terminology is confusing; blame Google! It's been this way since the G1.