I have implemented managed folder policy on deleted items folder within Exchange 2007 SP1( RU9), which is working as expected. However, if a user delete / move any folder directly under deleted items and has got any items in it, exchange will not purge /delete those items. Exchange is purging only the items which are placed directly under deleted items folder. Any thoughts please?

Now I have confirmed and all working. Perhaps the MSExchangeMailboxAssistants task took a while to clean the deleted emails from subfolders.