Hello Kevin,

for efficient forwarding the web cache should be directly connected to a router interface (in the same IP subnet of a router interface)

on routers you have the option to use GRE encapsulation to send and receive traffic but this is clearly less efficient then L2 forwarding and it may be not available on multilayer switch platforms or other like ASR

see

http://www.cisco.com/en/US/docs/ios/ipapp/configuration/guide/ipapp_wccp_ps6441_TSD_Products_Configuration_Guide_Chapter.html#wp1054573

when using GRE you can use whatever number of hops given that intermerdiate nodes know how to route the GRE packet destination(s) in both directions.

Hope to help

Giuseppe