I'm amazed this bug is almost 4 years old. This feature was working fine
for me up until I "upgraded" to v17.0.2 from 16.0.2. Downgrading back to
16 didn't fix this. This is annoying to say the least because Gmails
Trash retention is only 30 days and I prefer to keep my Trash longer.

A workaround I found is:
1) disable "Show In IMAP" under Settings>Labels in the Gmail web interface for 
the Gmail Trash folder
2) unsubscribe from the Gmail Trash folder in TB

Both actions seem to allow permanent setting of an alternate trash
folder. This is not ideal however since access to the Trash folder is
then lost via IMAP.

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https://bugs.launchpad.net/bugs/885525

Title:
  Deleting a Gmail Message Always Sends Item to [Gmail]/Trash

Status in Mozilla Thunderbird Mail and News:
  Confirmed
Status in “thunderbird” package in Ubuntu:
  New

Bug description:
  Thunderbird 7.0.1, Ubuntu 11.10

  Gmail accounts do not obey the setting in Account Settings -->
  [Account] --> Server Settings --> When I delete a message

  I changed this to move the message to Gmail's "All Mail" folder,
  attempting to imitate the Gmail web interface's "Archive" option.
  However, regardless of setting, the item always moved to Trash. This
  persisted after restart of the client. The settings save, but have no
  effect.

  Caveat: This was tested on two Google Apps for Domains accounts,
  though I suspect this behavior will happen with gmail.com accounts as
  well.

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