I doubt they'll ever run a cancellation through the waitlist - likely too taxing of a live program call that could bring the entire system to a halt.
A better system load process would probably to have cancellations move into a 3rd category of rooms (booked, available, cancelled) - only the available rooms are available for booking (either online or through MS). Then the waitlist program runs through open and cancelled room statuses overnight in batch and after matching waitlists converts cancelled rooms to open status for all. Two downsides to this - one, even though it might be a more efficient program there's a good chance it could require a whole lotta code that was based on checking a single room status. Two, hopefully
DVC's priority is to book rooms - whether it be a waitlist or an online reservation following a cancellation. So it likely isn't worth the investment to change the programming - the rooms are being booked under the current method.