Obviously there are issues that can mask the weight loss from losing fat in the short term (water retention is a prime culprit here). However, in the long term (at least 8-12 weeks) the trend should be fairly obvious. The situation you described where someone is packing on 1-2 lbs of muscle for every lb of fat lost is very hard to achieve and generally only seen in beginners. Once the beginner gains are out of the way they'll see the same pattern as everyone else.