You are right.  Gelato is simply Italian for ice-cream.  When I see it, I say "gelato" in Italian and "ice-cream" in English.  However, Americans think they are clever when they use foreign words, and they have decided that "gelato" (or "gelado" as they pronounce it) is some special thing similar to ice-cream but with less cream.  For the rest of us it's just "a creamy brand of ice-cream" (una marca di gelato abbastanza cremoso) or "a not so creamy brand of ice-cream" (una marca di gelato poco cremoso).

Here in Australia, it's even worse.  They say "geladi", presumably because Italian ice-cream parlours have "GELATI" ("ICE-CREAMS") written out front, so they have decided that it is a special word for the product inside.

You'll see the same tendency in the word "prosciutto".  People will actually say "it's not ham; it's pro-shoo-do", which is bemusing to Italian-speakers.  What they mean by "pro-shoo-do" is sometimes "Italian ham", sometimes "dry-cured ham".  It's beyond me why they can't just call a spade a spade.

A final note: my girlfriend once went to Italy and ordered a "lattay", as she pretentiously would in Australia.  She got her comeuppance however, when they gave her the glass of milk (latte) that she ordered, rather than the milky coffee (caffellatte) that she wanted!  —