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That is Eclipse for ya.
Eclipse is the basis for the Xilinx EDK's SDK. I like the debug features but the whole thing is hateful for version control (a million little XML files with no apparent rhyme or reason). And yes, when you remove a file from the project, it deletes it from the file system.
Also, consider that you have a directory called src where you keep your sources. Eclipse always assumes that if a file is in that directory, then it's part of the project. Why does this suck? Well, all sources are compiled. Since the MicroBlaze linker is too stupid to check to see if a function is actually called (no smart linking), everything compiled ends up in your executable. So if your sources are of the "one file one function" sort, a workaround is to simply not add the unused sources in the project. Which you can't do in Eclipse. And if you delete the source from the project, it's deleted from the file system and it messes up the version control.
Maybe this was improved in 11.2. Dunno.
-a