From reading other posts I have found the answer I am looking for:
Ubuntu One has an option to Auto-Upload Photos from Android phones to a specified folder on Ubuntu One. This feature works fine - on my phone sdcard\dcim\100MEDIA replicates to Folder1 on Ubuntu One. When I delete a file from another device from Folder1 it does infact delete the file from all other instances of Ubuntu One.
The catch is that Folder1 is not linked in anyway to sdcard\dcim\100MEDIA. The Ubuntu One folder on Android is located at sdcard\u1\Folder1. Deleting a file in one location doesn't impact the copy in the other folder.
Ubuntu One Files App for android is only good for viewing your content (and auto-uploading photographs)
A little off topic to my questions but maybe useful to someone - according to this post dated April 30th: http://ubuntuforums.org/showthread.php?t=1940338 content put in sdcard\u1\Folder1 will not be sent to Ubuntu One. Confirms what Joshua Hoover says.
Until Ubuntu One Files supports two-way sync natively your best bet is Folder Sync Lite http://market.android.com/search?q=pname:dk.tacit.android.foldersync.lite - I installed this app, setup ubuntu one access (it also supports several other cloud storage providers) and set it up to do a two-way sync (with option to sync deletions) and it works like a champ. To avoid any confusion I disabled auto-upload of photos through Ubuntu One Files.