That's a possibility, but then they never showed any private inclination to believe any differently. Your scenario assumes that the Council is quietly acknowledging the threat, whereas my scenario is that they themselves for the trick that you've just stated. They themselves didn't want to face the truth, so they created a veneer to hide behind. They figure they have a good thing going, too good for someone like Shepard to come up and rock the boat over an issue that they assume can't repeat itself.
I know, that's what bugs me. Private acknowledgement makes too much sense, so instead we get the air quotes. However I got the idea about that from the ME2 intro screen (if council survives ME1) :
One month after the devastating geth attack on the Citadel, the galactic community struggles to rebuild.
The alliance fleet made a tremendous sacrifice to save the Citadel Council and earned humanity membership in their prestigious group. Now the Council is forced to respond to evidence that the Reapers - enormous machines that eradicate all organic civilization every 50,000 years - have returned. To quell the rumors, the COuncil has sent Commander Shepard and the Normandy to wipe out the last pockets of geth resistance. Officially, they blame the invasion on the geth and their leader, a rogue Spectre.
But for those who know the truth, the search for answers is just beginning...
Kinda suggests that they did indeed know the truth.