Could pownce clarify for us whether deleted posts are retained in the database? Evidence comes from the fact that a thread that has three existing and two deleted replies, will list them as "Reply x of 5".

Two things here. One, it's a bug that the reply count gets goofed up when you delete a reply. We know about it and will get to it. Second, we do continue to store deleted items in the database because it's much much easier on the database to do so and it allows us to potentially create an 'undo' function in the future etc. This isn't a nefarious thing to do... we do not go through reading deleted notes and replies.