I definitely like that better than I would like the scenario if I just answered "Yes" or "No" to the first dialog and then I have to deal with second dialog to answer the question about deleting the contents. This is a usability goodner as far as I am concerned. ;)

Huh? So you bring up a hypothetical case that is even worse in order to...what...defend this horrible dialog?

I have higher expectations than that. The dialog really presents 3 options, not four. There must be a better way, such as...a single dialog with three buttons: "Delete Project Reference Only", "Delete Project and Content", or "Cancel". I'm sure with more thought, someone could come up with something much better.

The dialog as currently implemented is really weird.