Ben,
Sorry for the delay in answering this question. The current behavior is not ideal, but the .deleted directory is a legacy feature that was designed around a specific set of use cases.

The current behavior is

1. The .deleted directory is only created at the root of the file-root for each folder
 -- for example, it would be created in /FILE_ROOT/Home/@files for the Home project

Behavior of Files
======================
1. When a file is deleted, via the FileContent webpart, from the file-root directory,
   the file is not deleted from the filesystem but moved to the .deleted directory
 -- for example if the file /FILE_ROOT/Home/@files/brianisgreat.txt is deleted
    it would be moved to /FILE_ROOT/Home/@files/.deleted/brianisgreat.txt

2. When a file is deleted, via the FileContent webpart, from the a sub-directory of a file root,
   the file is deleted from the filesystem (ie will not be available in the .deleted directory)
 -- for example if the file /FILE_ROOT/Home/@files/subdir/brianisgreat.txt is deleted
    it will not be moved to /FILE_ROOT/Home/@files/.deleted/



Behavior of Directories
======================
1. When a subdirectory is deleted, via the FileContent webpart, from the file root or a sub-directory file-root,
   the sub-directory and it's contents are deleted from the filesystem (ie will not be available in the
   .deleted directory)
 -- for example if the directory /FILE_ROOT/Home/@files/subdir/ is deleted
    it will not be moved to /FILE_ROOT/Home/@files/.deleted/


Clean up
=======================
1. There is no process that cleans up the contents of a .deleted directory.
2. The only time that we delete from the .deleted directory is if the user deletes a new
   file of the same name, in which case the previous file in .deleted gets overwritten


I hope this answer is not too confusing. If it is, we can jump on a quick call to discuss this.

Brian