I have a USB WD Mybook that I am using for my iTunes library. I have noticed that when i delete files, either directly from the drive or through iTunes, it does not show up in the trash.
No.
It sounds like your external drive is deleting things immediately, but it should be throwing up a warning message if that's case.
Try doing a spotlight search for a track you've deleted from iTunes. Is the track still there somewhere? If so, where?
You could add a track to iTunes just for the purpose of running the above test.