It's so stupid that it's hard to imagine how they didn't spot the problems, my guess is that they shoved that in late in development because of all the criticisms they were getting about the small cities. It should be easy enough to "fix", they just need to scale up all the other population statistics in the UI to match the population figure, but that would officially make the marketing claims that you can track every person in your city dishonest as each sim would represent roughly 8 people. The alternative is for the population counter to show the actual population of the city, but I imagine they don't want most players to see that.
In more positive news, a modder has found a way to deactivate the disconnect timer
so that you can play the game offline, but you can't save or load your city doing that. But still, there's hope for a limited singleplayer hack coming soon.