Okay, since I had to solve this (kind of) in the iOS world, I'll pass on my knowledge.
First, know that there are three different protocols that you can use to access Gmail: POP, IMAP, and EAS (Exchange Active Sync). POP is largely irrelevant as it doesn't keep the mail on the server synced with that on the client. So we have IMAP vs. EAS.
Google, in their infinite lack of wisdom, have decided that EAS should behave in a way completely inconsistent both with logic and with IMAP. Deletion of a message using EAS archives it. This is the method that WP7.5 is obviously now using by default when you set up a Google mail account. EAS cannot be configured at all. The "smartass" comments were just that since they only related to IMAP.
IMAP can be configured to delete messages rather than archive them. In fact, this is the default behavior (thus the inconsistency). Assuming you have the advanced IMAP controls "Labs" add-on installed, if auto-expunge is on, then the server will interpret a delete flag properly and move it to the trash. If auto-expunge is off, then your client has to issue the expunge command on a folder (telling the server to process all delete flags), and in this case you have more control of what happens when the expunge happens (archive, trash, or delete).
The problem is that WP7.5 appears not to delete anything. Rather, it just moves the message from whatever folder to a "Deleted Items" folder (which has absolutely no meaning to Gmail whatsoever). Other email clients let you specify a trash folder, but not Outlook Mobile. So, none of the IMAP settings have any bearing here, either.
So, a) Google is at fault for being stupid with their EAS implementation (minimally the user should have the choice as to whether it trashes, deletes or archives as they do with IMAP). b) Microsoft is at fault for creating a sub-par IMAP implementation with NEITHER the ability either to mark messages for deletion or to specify the name of the Deleted Items folder. It also doesn't support IMAP IDLE, so message retrieval is delayed by a minimum of 15 minutes.
Both companies share blame in this, though from opposite ends. IMO, Google is the most to blame, though, for their poor EAS implementation.
Hope this helps clarify.