This functionality was added to TFS 2008, and you need the Power Tools to do it:
http://msdn.microsoft.com/en-us/tfs2008/bb980963.aspx
DestroyWITD Command
Use the
destroywitd command to destroy a work item type. Currently, work item types can only be deleted. Destroying a work item type means that work items of that type are physically deleted and cannot be restored.