Since when has a website design been in PSD?

Designing for the web doesn't mean that you are coding.

I'd actually take "web designer" to mean that the person designs and codes.
Web developer is usually the title a person who is mainly a coder will use.
Graphic designer is the title a person who only does graphic design (or mainly GD) should use. I think this is what your getting at though -- graphic designers calling themselves web designers.

Well, they are technically designing for the web so I suppose they are in their rights to call themselves web designers, but it is the lack of clarification that you have failed on. If you are outsourcing to someone then you need to be sure they will fit your needs (i.e. make sure it's a coded template your getting and not just a PSD), the price will usually be a giveaway of this (if it's abnormally low then theres usually a reason).

I call myself a web designer because I can design (to an extent) and I code (pretty damn well if I do say so myself ), but I do say to clients that I specialize in coding and that if they want a well designed website then I can outsource to a designer, otherwise I do my best to design what they want.

Have to say that i'm getting better with designing though, kinda getting into it more.

Anyway I think i've went a bit off track now so i'll end it there.