At least two of Netflix's three CDNs place servers or connections within the ISPs. Akamai has servers deployed within almost every ISP, and Limelight has peering connections to their datacenters. I'm not sure about Level3 (and they've been pretty tight-lipped given the Comcast brouhaha).

Rather than caching on the router side, I believe most of the magic happens in the load-balancing side. The effect (to the end-user) is the same, though.