Whether or not I'm active in the project depends on how you define "active." I'd contend that I am at least marginally active by virtue of the aforementioned series of meetings.
I know this kind of stuff happens in the business world, but I can't help feeling like my boss's request to hide this project's costs is at least slightly unethical. Slightly worse is that his communication brought me into the deception.
Should I feel compelled to speak up in this situation (even if only for self-preservation), or am I overreacting?
A lot of the other answers are basically saying that you should cooperate with your boss. While I do suppose those answers technically answer the main question ("Is it unethical for me to comply?"), I didn't notice them addressing the second paragraph that I quoted, other than not trying to overstep authority.
Let me give you another way to look at things, in case this helps put your mind at ease.
A project involves what I typically call "billable work". You could also call it "useful work", and your manager may use the term "active work". Regardless of which term you're most familiar with, the concept is the same. When something is charged per hour, billable work is typically actually billed. When something is flat-rated, there might be no actual cost difference to the customer/client, but still this concept of "billable work" is useful to help estimate how many useful hours are typically required for this type of project.
Some type of work, such as training (or re-work if an inexperienced person did something lousy, and requires re-doing) might not be billable work for a couple of reasons. The company may be embarrassed if a client found out that they were paying for such low quality. Time spent in such ways is often highly dependent on details like an individual's learning curve, and therefore challenging-to-impossible to quantify to a specific number of hours ahead of time. So, such things may typically be "unbillable", meaning that they are not part of the billing record.
Having hours that aren't part of the official billing can be quite helpful. I will use "training" as the example, primarily just because of me having seen this be usefully implemented. Fast employees can get things done in X time on a fortunate day. Employees may commonly take X+20% time on average. Slow employees might take X+50% time. Trainees may take anywhere from X+40% to X+1200% time, depending on factors like an individual's learning curve, and higher propensity of mistakes that need to be cleaned up. Now when a manager needs to estimate time, he may be able to handle a 60% variance during estimation, but handling a 700% variance may be a bit more challenging to believably do. If a project comes in 15% under budget, people give each other high fives and celebrate. If a project comes in 750% under budget, people are happy about being under budget but people may wonder why the estimation was so terribly poor to begin with. Therefore, believable estimates are preferred. Controlling what types of hours are billable is one way to be able to have estimates with enough accuracy to be useful, even such estimates aren't a totally precise representation of every detail.
In the end, management has the responsibility of determining how much they want to allow hours that aren't part of the project. A manager might decide to take a hit on accuracy so that numbers seem sensible and useful. Even if the results are not recorded in the project log, there's still the aspect of the manager having a feeling about just how much he managed to keep things accurate. If your time is recorded somewhere else, then there may even be "waste hours" which aren't officially part of a project. Hopefully management has a strong feeling about just how much inaccuracy there is in the official project logs.
As long as such things are understood to anybody who needs the numbers, there's really no intent of dishonesty here. When managers approve a project, they do so with the rough understanding that the project should require approximately X number of hours by experienced people. The managers can consider factors like whether there are trainees, or whether politics may demand trying to keep a client happy, and factor in however much foreseen "buffer time" is tolerable, and , determine how many more "unbillable" hours are likely to be potentially needed. The ideal answer is probably zero unbillable hours actually being needed, but an unideal number may be totally acceptable (particularly when circumstances may be less favorable).
So, if a project manager makes a decision that certain work should not be part of the project's billable hours, cooperate (unless that causes other problems, in which case you probably should voice your concerns, but then be prepared to accept whatever answer management gives). And, this can be completely ethical.
Also, could my boss's communication come back to haunt me (us) if we were audited?
If you may be audited, the purpose of the audit is to see how much reality matches requirements. Whether this will be a big deal or not will depend on what those requirements are, which can vary for different situations (especially when you're dealing with different organizations). Therefore, this question does not have a single/simple answer that is universally correct for all, or even most, general circumstances.