While I agree with Andy that we need to know precisely how Exact Search currently works, I will answer your question as posed.
If I searched for "Lived In," I would expect to see all records for which Ancestry currently creates a Residence event on a profile page (e.g. Census, Draft) as well as those records where "lived in" is likely, including birthplace and death place. Although it is possible that the person did not live in that exact location (e.g., hospital where born or died is in a different city, county, and/or state), as a researcher, I would want to start with that record and pin it down myself.
I hope that we can discuss many of the issues about "exact" search here. A better understanding of how the computer generates results will lead us to more productive discussions. Last year, discovering how certain databases are indexed and even categorized led us to an understanding of many changes that needed to be made. I think that some of those issues have been/are being addressed. Some of the date ranges assigned to various databases also caused problems by returning "exact" searches that were wildly far afield from the dates entered. I do not know the current status of this fix.
I'm looking forward to this discussion. It seems that it has been quite a while since Search issues have been addressed.