Essentially, yes. Smaller nm means more transistors for a given die size.
For example, the original Pentium Processor had 3.1 million transistors on a die that was 295 sq. mm in area, produced on a .8µ (800 nm) process. By contrast, the latest Core 2 Duo is on a 65 nm process, and crams 291 million transistors (almost 100x as many,) in 143 sq. mm, or less than half the area.
THAT is what Moore's law is talking about. 10,000 transistors per square millimeter in 1993 vs. 2,000,000 transistors per square millimeter today.
And, yes, at present, a quad-core chip would be larger than the mobile package Intel currently uses.
Stacking dies on top of each other runs into the problem that the heat generated by the 'bottom' die has to pass through the 'top' die to get to the heatsink, and the top die is generating heat of its own, too.