This is connecting to an exchange server, so Outlook on the desktop. When I did the test earlier, I actually created the folder via the webmail interface.
Created folder, the in aqua mail, it shows up with my other folders where it should. Deleted it in webmail and then in aqua mail, it moves and shows up under deleted items.
In Outlook or webmail, the folder no longer shows at all and there's nothing under deleted at all.
Hope that made it more clear.