EngineerPilot, your CFII has no idea what he is talking about. At the school where I taught the only safety pilot PIC time our students got were Night X-C. They would get the plane at 8pm and bring it back at 6am. Out of the HUNDREDS of students we had none of them got in trouble for that. Plus, think of it from the FAA standpoint. Why would they care if it was local 8 hours or if you went 50 miles away? They don't care, so niether should you.

As far as the pilot under the hood being the only sole manipulator of he controls goes, what good is that if you have no idea where you are going. A little kid can fly a heading and altitude, it is the safety pilot that I think takes talent. This is assuming you are doing it right. PM me if you have any more questions or if I need to clarify. Just be honest with the examiner too, heck, why not call him and ask this question. He would be the one to veto it anyways so go straight to the source.