I wasn't involved in the handling of the original flag, so this answer may be less than satisfactory.
the contents have not been blanked out
Just to be clear to the users with less rep points: once you get to 10,000 rep, you can see posts that are deleted. (I think it is also visible through the Data Explorer). This is a good thing (IMO) because it allows trusted users to vet the work of the moderators.
However, it leads to some weird situations:
If we delete a post because it is spam, and it can still be seen by a lot of people, have the spammers won? (At least Google doesn't see it.)
If we delete a post because it is is libellous/hateful/doxxing/copyright-infringing/plagiarism etc., and it can still be seen by a lot of people, have we really respected the victims?
We can edit away the contents, which means it is only visible in the edit history - i.e. not to casual inspection, but available for more deliberate effort.
In some cases, it is possible to take it a step further and destroy the contents more thoroughly, but it is a rather severe action (and
may sometimes require always requires developer support).
Content that's spam or hate speech is blanked out.
Is that a hard and fast rule? I'm not sure it is. For example, if enough users simply use the "flag as spam" option, the system deletes it, but doesn't blank it. (I bet there are fancy spam-detecting rules, but I don't know what they are.)
Should it be a rule??
Does this mean that mods don't regard this content as hate speech?
I personally don't, but I don't think that means very much at all. It is an opinion, probably based largely on my ignorance and my privilege, and very little thought. It is also based on my general policy of preferring to err on the side of non-censorship.
If that is a mistaken opinion, let's fix it. I don't have an infallible opinion.