Does AWS S3 lifecycle rule delete folders

Yes, the blog post you linked (from 2011) appears to contain obsolete information. From the docs:

If the bucket is versioning-enabled (or versioning is suspended), the Expiration action logically deletes the current version by adding a delete maker as the new current version. The NoncurrentVersionExpiration action permanently removes the noncurrent versions.

http://docs.aws.amazon.com/AmazonS3/latest/dev/ObjectExpiration.html

The only problem with your plan is that a lifecycle policy to remove deleted objects (to save storage) is somewhat at odds with disaster recovery protection against maliciously deleted content. You'd have to discover the breach quickly, or the lifecycle policy would purge your apparently-deleted-but-actually-hidden objects.

That isn't to say that your strategy isn't theoretically good -- I would suggest that it is, as I use something similar -- but the purge of no longer needed objects may need to be more sophisticated than lifecycle policies can provide, and may require custom logic that runs on a schedule and has additional rules.

I'm sure you're onto something.

It definitely makes sense that you are seeing everything in the bucket being counted as an object... they are all entries in the bucket's index.

As for the off-by-two error, the bucket policy, bucket ACL, website redirection configuration, lifecycle policy, event notification configuration, CORS... any of these or other "configuration" elements are potentially counted as objects, and multipart uploads might be counted as number of parts + 1 for some kind of logical "container."

This last part is speculation, since don't recall seeing it spelled out in the documentation... but given what's known from the outside -- that the bucket index (essentially a lexically-sorted database) and the backing store are discrete components -- it's entirely sensible that S3 would count everything that is in the bucket index when reporting its stats to CloudWatch, whether humans would naturally count them as "actual objects" or not.