When I log in and delete an entry and then rebuild the site, the only thing it does is remove mention of the entry page from the main site. It does not actually delete the entry page. Is thi show it is supposed to work? If so is there a work around so that it actually deletes the static page when I delete an entry?

No, this is not a bug, MT does not delete files from your server. If wish to delete the file, you will need to do it via FTP, or whatever File Manager tool your webhost provides. And yes, the ability to do this is already on the Requested Features List.