They are not circulating as in they cannot be bought sold or moved. But they are circulating for the incentives (dividends) in that they give the owner incentives since they are locked in her/his account/address
I was hoping @dandabek might give his view on a small change to the procedure and make the permanently locked (burned) coins be available for unlocking by the owner after a set # of blocks have been mined. Say 12 months worth of blocks. This way we do not see a growing overall number of coins locked which after 10 years surely will be quite significant. By making the period say 12 months it also stops spamming. Even 6 months (perhaps 3 months) would prevent significant spamming.