Yes it's right. You can only have the free dining with a package, so need to stay at a Disney resort and buy park tickets (though you could just buy a one day ticket - no need to buy for your length of stay).
Every year I decide I will buy just one annual pass (regular tickets for the rest of the family)to take advantage of the annual passholders resort rates, but then an offer such as free dining comes out which you can't use with a passholders discount.
I reckon the DDE should come free with an annual pass - I'm not convinced that it is such good value when compared to the Dining Plan, although I suppose that depends who often you are going to get to WDW in any given year.
Karen