Hi Roger and all,
Drush will delete non-drupal files that are not in the sites directory.
It sounds like you typically have a php.ini file installed at the Drupal root. Did you put it back after Drush erased it? Can you verify that it is still there?
Even though I have a dedicated server, I run it like a shared server using cPanel. I've updated 12 Drupal 7.19 sites on 12 different cPanel accounts and have not had any problems. However, my situation is different in that I have the server-wide php.ini file tuned for my Drupal set-ups, so I don't need to have any php.ini files installed at the Drupal root.
But I do manage a Drupal site on another cPanel server and ran into problems similar to what you ran into. Drupal erased the php.ini file installed at the Drupal root. Once I figured out that was the problem (with some help from the HostGator customer support), I just put back the php.ini file (which I had a backup of) and everything got better.