When you remove a Facebook friend from your friend list, the entire communication record remains, including your chat history. This integrated record is called a conversation. Regardless of which party deleted which, both parties can still access the full conversation, and deleting a message doesn't delete it for the other party.
Deleting a Friend
Removing a Facebook friend breaks the connection between your profiles. You no longer show up in each other's lists, and your friends can see that you're no longer connected, although no alerts are sent to any party. All comments on your walls, as well as the entire message history, remain for both parties.
About Chat History
Every chat history between two or more Facebook users is fully integrated as a conversation along with the message and text history for those users. All messages, regardless of mode, are arranged chronologically, latest messages listed first. Unless you intentionally delete one or more messages, they remain as long as your Facebook account remains open.
Accessing Chat History
You can read all chat and other messages between you and a deleted friend by visiting the message area of your Facebook account. After signing in to Facebook, click "Messages" in the left sidebar and scroll through the message list to locate the deleted friend's name. Clicking the name opens the conversation. If you can't find it by scrolling, you might have archived the conversation. You can search for the conversation by keyword in the search box at the upper right.
Deleting Chat History
If you deleted a friend expecting the chat history to be deleted as a result, you can delete these messages manually. Locate the message history for the deleted friend and open it. Click "Actions" and click "Delete Messages" from the drop-down menu. Click the check boxes on individual messages and click "Delete Selected" or just click "Delete All" to delete the entire history.