Froyo - Gmail - Can you delete by message, or only by thread?
I'd say it's expected behavior. I mean, the big "Delete" button in the Gmail web app tosses the whole conversation to the dust bin. You have to dig a little deeper on the individual message to delete it out of the conversation. (Also, unlike the web app there is no option to view individual messages like a classical e-mail client.)

By the way, have you downloaded the latest Gmail app from the Market? There are quite a number of significant improvements over the stock app.