Well i can't replicate that unless the domain is an alias.

For full domain names with dns (and dns records) it just deletes the site for me (on both live and updated WSP environment that exists since the first WebsitePanel beta).

what dns server are you using?   We are using simpleDNS not sure if this is related to the other bugs regarding simpleDNS IE: instant alias and switch ip

I'm using MS DNS,

Instant alias i can confirm is broken, it's currently being checked out by Scott to be fixed.

this issue and IP switch we however can't reproduce on our dev and live

It could be simpledns but it would be odd, as basically the deletion script doesn't specify providers to be used, and doesn't have anything there to delete a domain on a site deletion which makes your issue weird.

this has been resolved in the latest builds!  - this issue was related to the domain pointers fix.