Why does cancelling a game update remove the entire game???

In addition to what Cerebral Paul has said, I think MS need to add a warning message for users on the Xbox platform if they try to cancel updates as there seems to be a misunderstanding of how updates work.

For an additional simple explanation, imagine your game had a 1GB update and your game is 20GB. When the update is downloaded and installed, your game is
not now 21GB. The reason for this is because the update is overwriting older files during the download. Your game is probably still around 20GB after the update give or take (it may even be slightly less).

Typically your game will only be using more space if the game contains DLC. DLC is now part of game updates, regardless of whether you buy the DLC or not.

If you cancel the update then the files being over written won't finish and your game will not be complete so you'll end up with a incomplete installed game that will no longer work. Hence the entire game is removed.

Windows does its updates differently and is the reason why large updates so long to install on a PC - all of this though is beyond the scope of this post however.

I loved your reply so much that I had to reply. It's a great explanation and I never knew this is what happens. Thanks for the informative post.

Unlike Windows the Xbox does not store a temporary version of the old versions of the games and apps when it updates, it simply overwrites the affected files. (The exception is console updates, they work a bit differently)

I'm sorry to hear about this. I agree that there's confusion and not enough clarity about cancelling updates...

Thanks for the explanation. It was very acurate.

There should definitely be a warning when complete delete is about to happen.