Master Data Services provides a way of de-activating entity members using the StgMemberAttribute table as described in Books On Line http://msdn.microsoft.com/en-us/library/ee633772.aspx

This is a somewhat straightforward approach and requires for you to populate the StgMemberAttribute table with AttributeCode (actual code of the member in MDS), AttributeName as “MDMMemberStatus” and AttributeValue as “De-Activated”.

In a recent MDS implementation, I came across an error when I was trying to de-activate all members from an entity. I followed the same steps I usually follow but the members were still not being deactivated. I noticed that after the rows were processed, a batch number was assigned but the Status_ID column in the StgMemberAttribute remained unchanged with the default value of 0 (ready for staging). The ErrorCode column also remained unchanged.

After several hours of research I bumped into a fix introduced in the MDS June 2010 Cumulative Update. The fix found under the Import and Export section states:

The staging process supports the deletion of members from an entity that supplies domain-based attribute values for another entity.

Bingo! The members I was trying to de-activate were part of an entity being used as the source of a domain-based attribute of another entity. I had confirmed that no members were being referenced and I even deleted this referencing domain-based attribute while trying to de-activate the members.

After applying the MDS June 2010 Cumulative Update I was able to delete the members of this entity. 

As of the date of this post, Service Pack 1 and two additional Cumulative Updates have been released for MDS. You can check what was fixed in these updates and how to install them at the MDS team blog site: http://sqlblog.com/blogs/mds_team/archive/2010/02/10/staging-examples.aspx