What it implies is that the internal tool(s) that the support staff uses was designed to do deletion instead of status changes. I imagine they have a web interface that fires off some backend script which a) runs sql deletes on an account ID and all tables and b) fires off scripts that physically deletes all photos across all servers.
Taking those implications in hand, it points to an incredibly poorly designed system for account management. Some years ago, there was an internal planning meeting where a decision was made to do this. Some people objected and were overruled. The ramifications of that project manager are still sticking it to people to this day.
I have a hard time believing that Flickr would have purposely engineered their systems in the manner I've described. Not impossible, but unlikely.
So I think its more likely that the data is still there, but that customer service has no method to resurrect it. Its probably a mix of internal policies and the lack of devoting a couple of engineers to fix the problem that is causing all of this.