Coming from someone who is in the middle of his PhD program, I would say that it is really important to discuss your interests honestly with your presumptive future advisor (or school). Forget about the morals and ethics, forget about depriving other people. Sure, it's wrong, but that's not your main concern for your decision.
First of all, your concern should be about getting yourself in and our of grad school efficiently. Sounds easy, right? Keeping yourself moving forward is harder than the actual work, and I say that as an experienced 37 year old (former) professional. I know for myself in engineering, my wife (PhD in Psychology/Neuroimaging), and a lot of grad student friends, grad school is incredibly tough. But it's not necessarily the academics or even the research that is so tough. It's the "politics". What I mean by that is keeping your masters/PhD focused, keeping your proposal to a reasonable scope, keeping other people from taking it over, keeping your committee members from exerting their own biased interests on your project, keeping your advisor from keeping you there forever as cheap labor. Or what about this: my wife's PhD advisor got fired for fooling around with a student during the middle of her degree. Think you can just "get another advisor"? You have to find someone with the same research focus, with funding, with time for another student. Or start over from scratch with a new advisor. Or for me, my advisor is old. If I don't get my proposal approved asap and god forbid something happens to him, I could end up effectively abandoned in the middle of my degree. AKA "Start Over". My project got switched three times in two years before I put my foot down. Ok, so that might all sound crazy, but you check around and you'll find a ton of these kinds of stories. I've only met a few people who had a really smooth grad school experience, at least outside med school. I've heard that med school (residency, etc.) is a very focused, structured and disciplined experience.
What does all that have to do with you wanting to do a masters by being admitted into a funded PhD program? Well, first, if you sign up as a PhD student, you will be treated as a PhD student, which means you will have to do a lot more in the way of forming a PhD committee, making an extended research plan, submitting a proposal, passing your qualifying exam, etc. etc. when you don't have any real intention of doing that. You're wasting YOUR time, not to mention anyone else's. Second, you are really sabotaging your own success at earning only a master's degree.
Here is a specific example: Your PhD project will be very, very different than a master's project. If you are in a combined Master/PhD program, your masters and PhD project is one in the same (maybe different phases/levels of difficulty). How are you going to get out of the program in 1-2 years with a master's if you're working on a PhD project set up for 3-4 years? You can't just stop in the middle, say "that's enough", and expect them to hand you a master's degree. Sure, you can absolutely quit, but you probably won't have any degree - just a couple years wasted and some prospective employers asking you what the heck happened and why you aren't reliable.
Furthermore, as a PhD student, you might be guided to spend your whole first year getting classes out of the way without even starting on your 3 year project in earnest. Or, a different school might do the opposite and guide you to spread your classes out over 4 years. In my case, my research project was in a rush to get started, so I didn't take classes at all my first year. I just worked on building my reactors and getting them running for a multi-year duration experiment. That was my decision to ultimately benefit myself, but depending on the circumstances, your advisor may instruct you to do something similar.
One thing I will say about ethics/morals/quitting is that in my field of water/wastewater engineering, at the graduate level, it is a remarkably small world. If you quit a program for an "honest" reason, nobody will frown upon you. But if you develop a reputation for not being genuine, there is a reasonable chance that it will haunt you eventually.
Another thing that I will agree on with some of the comments to your question: Don't do a PhD unless you know exactly why you are doing it. I'm doing mine because I want to do a very specific job and after 10-12 years working experience, I decided that I wasn't going to find a way into that job without a piece of paper hanging on the wall with the letters "PhD" on it. It's not really about learning - I'm teaching post-docs right now. But no one is going to hire me to be their "expert" unless I have that PhD hanging on the wall to prove it.
And it is absolutely true that having a PhD can be a hindrance for many jobs. Sure, you can say it's because it means you have to be paid more, or because being overqualified could scare an insecure boss. But I have actually had someone say to my face that they wouldn't hire a PhD in their consulting business because PhD's are by definition perfectionists. That person said "in engineering consulting, there might be 10 solutions that will satisfy the project requirements. I just need one; it doesn't have to be the absolute best one." And to that, I agree wholeheartedly. In business, you can't waste time like that, and PhD's have a reputation not to the contrary.
