Maybe "deleted" is the wrong word (that was the action). Perhaps a better term is "locked out ... permanently", but they are using "reserved" with the intent to no give out details like which reason it is not available (there could be others besides locked out because of delete).
I still didn't get the full story on the WP policy on this (I guess I have to go research it myself), but it seems to me that when a blog is deleted, they not only dispose of all the content, but lock out the blog name, too, so that we don't have a situation of people trying to collect "dropped" blogs and do whatever with them.
I would have done things a bit different had I built a blog hosting site, by allowing the original blog owner to get it back. But even that would not meet your intent to move the block from one owner to another (I would have created a means to do that, and I'm guessing WP might have one somewhere).
So, hopefully the WP support staff ... err ... happiness engineers ... will see that things match and can do this for you. Hopefully you've consumed the appropriate treat of humble pie (e.g. don't delete if you intend to keep).