Yes, music (purchased from us or otherwise) does count against your storage quota; however, quota is not taken into account when purchasing songs. So you can continue buying songs and they will be delivered to your account and all your machines that are syncing the folder, even though you're over quota.
This is actually a FAQ:
What happens if I go over my storage quota by purchasing music?
The music store will permit you to buy
more music when you are over your
storage quota. If you are over your
storage quota, you will not be able to
add more files to your account from
your desktop or from the web until you
remove enough files to get under your