I agree with what you are saying. The muscles will appear as you are removing the fat covering them. But I actually gained some muscle while losing fat. I started measuring my BF% on 8/22/09. Before that point I had already lost a good bit of weight/fat and gained muscle but didn't track it. I was down almost 30 pounds. But here's my results from 8/22/09 to 6/4/10
8/22/09 weight= 182.6#, bf=17mm (20.2%), fat weight = 37lbs, lean weight = 146lbs
6/4/10 weight= 169.8#, bf= 7mm(10.5%), fat weight = 18lbs, lean weight = 152lbs.
I lost 19lbs of fat while gaining 6 pounds of muscle.
Now I'd be happy to gain a pound or 2 of muscle a year while losing fat.