Yep. That is actually a good learning point for people moving to all-grain. Extract is easier in that the package is made for five gallons so you start with 6.0 or 6.5 or whatever you feel like boiling off, and then stop at five gallons to get the OG of the kit. Or, you boil 4 gallons and top off to reach five.
With AG, you're making the [proper] amount of wort sugars rather than buying DME, and your brewing software will let you add four extra gallons and then watch you while you boil it off, but the amount of wort sugars you lautered is the same regardless how much you water it down during the sparge. Also identical is the final amount of water that is still diluting those sugars when you're done boiling, presumably also five gallons, so SG would be the same. You have not changed your target, just your watering down. BeerSmith just tells you to collect more so you can boil longer and reach that same target.
Bitterness rises because the lower gravity wort (from the excess water) facilitates better utilization of the hops during the boil.
