Because it runs Linux binaries and not FreeBSD binaries instead.

"If it looks like a duck, swims like a duck, and quacks like a duck..."

You've made a fair observation, but being strictly correct in the naming, in this case, is probably not helpful for Microsoft or users.

"Windows Subsystem for Linux" sets an appropriate expectation with me (the user) that I will get an experience not dissimilar from installing a real Linux distribution of one sort or another. For Microsoft, it's simply the easiest way to market that idea in the product.

No matter how much someone like a Richard Stallman would like me to differentiate between Linux (the Kernel) and the large proportion of GNU utilities that are the common tools of a complete system, in practice I simply think of the whole lot as "Linux" and probably always will... regardless of how fair, important (or not), the distinction actually is. I expect there are many more who think like that than not.

It's not. It is called the Windows Subsystem for Linux. As I pointed out at https://news.ycombinator.com/item?id=11417059 and elsewhere, this name is in line with similar names that go back a quarter of a century, and they are all in one way or another named after the part that the Windows NT kernel substitutes for.

The WSL converts the Linux system calls to Windows calls with additional wrappers to implement the system calls correctly.

If you're going to be pedantic shouldn't it be "GNU/Linux"?