This is true of almost every service on the internet. If it wasn't, whenever the only disk that had your account on it failed you would be absolutely livid about the fact that they never made any backups. (It is generally infeasible to purge backups of any deleted data, because they're stored in compressed blobs.)

can you back this claim up somehow? I recall Flicker losing bunch of profiles (photos) permanently because once its deleted, well its deleted.

What you are confusing is planned backups, in case of hard drive failure, and the fact that customer executed delete command and consent to get those files deleted. two different things.

I don't know where to start collecting anecdotes and appeals to authority, but I shouldn't need to. See my parenthetical above--how would you go about digging through terabytes of compressed backups to find every instance of a single file and its corresponding database record so that you could delete it? It would be possible to engineer such a system, but in most cases it would be an extremely poor allocation of resources.

If you upload something to the internet and you want to be the only person who is ever able to pull it back out, you should encrypt it.

Look at all of the people who consider Dropbox a "backup" service, and imagine being the guy on the phone who has to explain that yes, actually, deleting a file on one system is supposed to delete it from all other clients.

I will say that this is a really interesting story, in that it illustrates how Dropbox, like all of the similar services on the market, is handy for many use cases but ideal for almost none. A service that's basically a "scriptable" Dropbox would be pretty compelling.

However, I agree that users should be able to delete a file from Dropbox' servers if the user, since the beginning of the file's life on Dropbox, had the only account possessing the file on Dropbox. The procedure should involve a lot of red warning buttons and re-entering of the account password. I think this should be possible because some files really are too sensitive to be shared, and I can see how they might accidentally be pasted or dropped into the Dropbox folder and instantly duplicated. If the file is dropped into a shared folder, then there is probably nothing to be done because obtaining multiple permissions to permanently delete a file would be so complex socially.