Axr2 -
Sorry it took me so long - I was out of the office for a long Memorial Day weekend!

Anyway - We have our settings to:
VEREXISTS: 10
VERDELETED: 0
RETEXTRA: 10
RETONLY: 0

Our TSM Admin set these, so I can't speak too much about why they are set this way. But according to the Redbook
If the retention for the backup object is set to retain zero inactive objects(retextra=1,verdel=0) or to retain inactive copies for zero days(retextra=0, retonly=0), the active backup object will change to the expired state as soon as the active backup is inactivated.
You have retextra and retonly set to 0, so it should be working. I didn't spend a lot of time going through the Redbook, but it seems to have a lot of information regarding setting up TSM. Maybe it will have something that will help you.

HTH
Jodie