It sounds like your manager is skilled at playing word games, but lacks a game plan when it comes to managing. The key issue is that he should be focusing on managing employees rather than managing vocabulary.
The rationale behind using "challenge" instead of "problem" is that the words people use have an impact on their thought processes and ultimately on their behavior. "Challenges" have an exciting and motivational quality to them, while "problems" sound negative and difficult to solve. By viewing problems as challenges, the idea is that people will approach them more positively and productively.
Since your manager appears to be placing emphasis on words over deeds, you should meet with him and tell him you are encountering a challenge. The next step is to provide him with instances in which you and your associates need more help, support, and guidance from him.
If he is receptive and responsive to your comments, his focus on word choice will be less of an issue for you. And if he ignores your comments, then his emphasis words becomes quite hollow, and one can only conclude that he is a challenge, or a problem, or a challenging problem.
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