Nevermind. It's working now. Not sure what was going on.
Ok, I've kinda figured out what's going on.
Here's the full workflow I'm attempting. Maybe there's a better way...
I have an iPod Touch. At the moment, MC doesn't support this device. So I set up the virtual handheld and told MC to convert unsupported file formats to lossless WMA. I then add files to my iPod playlist and sync up the virtual handhelf. MC does the conversion and copying.
If, at this point, I remove files from the playlist and do another sync, MC correctly removes the files from the handheld.
But there's another step to this whole process. I open up iTunes and add the Virtual Handheld folder to the iTunes library. iTunes automatically converts the WMA files to AAC files and then I can sync those files to the iPod Touch. Once iTunes has converted the WMA files to AAC, I remove the WMA from the iTunes library.
However, once iTunes has had it's filthy paws on the Virtual Handheld folder, something breaks and MC no longer will remove files from the handheld if I remove them from the iPod playlist. I've set iTunes up to be as unobtrusive as I think I can. It's not supposed to be doing any kind of automatic maintenence on the files or anything like that, but still, once it touches that folder, MC no longer removes the files correctly.
Is there anything I'm missing here?
And in case anybody's curious, I'm only using AAC right now because I was hoping that if iTunes was the app that actually encoded the files, it would reduce the amount of times the iPod decides to just skip the currently playing song and move on to the next. So far, it looks like that was a faulty assumption, so I may in the future just skip a step and have MC encode directly to MP3 and then just use iTunes to upload those. But I still think I'll wind up with the same problem I'm having now.