Earlier quoted context omitted.
"It's actually rather hard to fire a grad student. The adviser pays the student very little, but in return (s)he is expected to graduate the student. A student who is fired by Professor X three or four years into a Ph.D. program is well and truly screwed. They might sue." ...which is why the question rarely arises. The faculty have devious ways of eliminating students that don't make the grade. Why fire people, when…
Can you elaborate a little on these devious ways?
Your PI knows the weaknesses in your research and knowledge better than anyone, and can use this to your disadvantage. I've witnessed faculty who aggressively attack their own students during examinations (a truly disastrous scenario). More often, advisors will simply fail to defend their poor students from unfair attacks by other faculty. Departmental lectures, defenses, oral exams, etc. are remarkably subjective affairs, and one bad comment can snowball into an event that will add years to your time in grad school.
Another very common tactic is for the PI to hand out the best research projects to favored students. There's nothing so demoralizing as watching a first-year grad student get an publication in Science or Nature (by being assigned to an already successful project), when you've worked for years on failing experiments. I've seen this happen too many times to count.
Like I said, there's no way to list all of the different ways that your PI can make your life painful. It's just an extremely unbalanced, unregulated power relationship, and with any creativity at all, an advisor can use that power to destroy you.