I solved the problem for my own IMAP account, proceed at your own risk. ha
I use DreamHost.com for my IMAP server and they have a good Wiki on how to set-up Mail.app for IMAP here
http://wiki.dreamhost.com/MacOS_X_Mail10.4
The key was to specify an IMAP Path Prefix as INBOX. This solved the mail delete problem and created some new mailboxes on the mailbox pane on the left of the Mail.app window at the bottom that has my old-messages and Trash.
What I did also via Webmail was to create a sub-folder of my inbox called *Archived Notes* so that I can email myself old notes from my iPhone for safe storage. I just drag-n-drop my old notes from my INBOX to the Archived Notes mailbox in Mail.app then I can delete the note from my iPhone's Notes app.
If I go to my Webmail or iPhone Mail I have my INBOX with the sub-folders: Archived Notes, Deleted Messages, Junk, old-messaqes, Trash. This is all accessible via my mail clients. Keeps my mailbox tidy, gives me access to deleted Notes from my iPhone and things seem to be running fine.
When you do this don't be alarmed when your mail disappears from your inbox in Mail.app as they will reappear as it says in the DreamHost Wiki.
Hope that helps.
Message was edited by: Baron Sekiya
Message was edited by: Baron Sekiya