In a video captured by OXM UK, Molyneux attributes the misconception to his own "horrendous mistake." Specifically, a decision made to remove the game's navigation components for the E3 demo, in order to simplify the demonstration of the title's gestural controls. So, yes, what you saw at E3 was on-rails, but the real game won't be.
What, exactly, those navigation components entail we still don't know, but one has to imagine they weren't exactly in an overly functional state if Lionhead felt it necessary to straight up strip them out and risk giving people the complete wrong idea about their title during a press conference streamed out to the entire world. Or maybe Peter Molyneux just really likes screwing with people. After all, it's not like he's proven himself averse to saying things that don't turn out to be entirely true.
As for the previously demonstrated magic energy ball rave dancing motions seen in the demo, those seem like they'll probably still be in the game. Unless, of course, Peter just up and decides those were a horrendous mistake too. I wouldn't put anything past him, at this point.