But suppose you delete all posts, does the activity then decrease and you mutate back into a newbie?
Yes, this is correct. If you delete your posts manually, one by one, your activity will decrease as well. It can decrease even lower than Newbie: it can decrease to Brand New rank. The same applies for nuking action.
Then theoretically he should have been a Senior Member in the time back...
That's correct, he was Sr. Member before deleting the posts.
I have actually never seen that before...
Look at this
topic for another example. I reported so many posts of OP that she turned from member to Newbie rank. Later, she posted againg and became again Jr. Member.
Apart from that, for the member, these are the 250 start merits, because he already had his account before the introduction of meritsystem.
Means he has no self-deserved merit...
Yes, no self earned merit in this case.