My idea is: if a thread has prohibited content, the thread should be edited (by removing all content and replacing with something like "moderator edit" on the title, content and tags) instead of deleting it. This applies to all types of prohibited or violating content.
...if a thread has prohibited content, the thread should be edited (by removing all content and replacing with something like "moderator edit" on the title, content and tags) instead of deleting it.
Currently when content is flagged 6 times, it's automatically deleted. In this way, the offensive content is removed faster than if it had to wait for a diamond moderator. This minimizes its harm. Also, it indicates to anyone who posts offensive content: it's not going to last long.
This is a soft deletion, as Makoto's answer highlights, so it's possible for high-rep users to see the edit history, etc.
It's already possible even for non-(diamond moderator) users to edit posts to achieve this goal:
We designed the Stack Exchange network engine to be mostly self-regulating, in that we amortize the overall moderation cost of the system across thousands of teeny-tiny slices of effort contributed by regular, everyday users.
A Theory of Moderation
Diamond moderators are human volunteers, and probably don't want to waste their time curating offensive content. Perhaps they'd rather spend time with their family.
Merely replacing offensive content with "[moderator edit]" adds noise which Stack Exchange strives to minimize, and the offensive content remains accessible through viewing the post's history (and thus is still harmful).
Diamond moderators can suspend users who repeatedly post offensive content.
Content is seldom deleted from a Stack Exchange site. It's often just hidden from view if it is deleted in the conventional way.
The only time content is actually removed is if it's harmful or actively detrimental and shouldn't be shown to others after it's been dealt with.
Once you get 10K+ rep on a specific network site, you can see the deleted posts yourself, unless they have indeed been permanently removed from the site.