I'm not defending their logic but yes, they do expect you to have one account per person, in the same way you can only have one user account per iDevice.
To fix / workaround your issue, Apple have released the 'Family' feature with iOS 8 (Settings > iCloud > Family), so you can link accounts together to share purchases, all controlled by a single master account. This is actually quite useful and gets around the issue of having to buy multiple copies of apps. I just need to work out how to use it when my family members are using different regional stores before I enable it, but that's a separate issue.
Edit: I just noticed that currently all linked family accounts must all use the credit card linked with the master account for purchases. This may work in your situation as you were previously all sharing the same account, but isn't suitable for me as other family members buy their own media...