ahh I think I know what the problem was... I had primary usergroup as admin, but secondary as moderator and we don't allow mods to hard delete. I assumed that if you've got admin as primary, those permissions would be override any of the secondary usergroups?
Well default just means no or not set and as I said earlier, the permissions are cumulative.
So if the registered user group has "Delete thread by self" set to default then it means they don't have the permission to do that.
If they are then added to another group which has "Delete thread by self" set to allow then they will be able to.