Though PC's phrasing here is rather inconsistent, technically there is a difference between removing a product (from the catalog) and actually deleting a product (from the database).
The option to "delete" a product in the CP actually just removes it from the catalog. It still exists in the database, but with a flag that it has been removed. This will prevent it from showing in most places in the CP (e.g. Locate a Product) and remove it completely from showing on the front end. It will also prevent past orders with such a product from crashing (because such a product record no longer exited in the database).
To truly delete products from the database, you really have to go out of your way (it's in the wiki -- our team likes to call it the nuclear option).
If removing a product from the catalog is removing it from reports, that would definitely be a bug. Please let us know what version you are running and I'll check it out. Adjusting the report queries for this, if necessary, would be very simple.
However, truly deleting products from the db would cause failure on previous orders, reports, etc. as the record would not exist anymore (though I'd expect that most reports should run off of data on products ordered, not the product records themselves).
Either way, having some 4K products either shunted to a hidden category, or similarly using the PC option to "delete"/remove a product is of no concern on a SQL db (that's a pretty small number for such a db platform) and wouldn't slow anything down as I see it, as those records simply wouldn't be part of any SQL queries on the front end, and nothing of significance on the back end.
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