My families follow the naming pattern, although this is the first I've heard about the deceased angle, there is one father who didn't get a look it. There was no shortage of boys to name after him but his name was never used. I just though they didn't like him but perhaps he was deceased. Interesting.
My family also followed traditional naming pretty closely (at least for the first few children) and it didn't matter if the parents were living or dead. They did make a few alterations to honour relatives who had recently died and didn't have somebody named after them yet.
I do have examples of vanishing names though. I think a lot of the extinctions tie into religion and evolving ways of how people feel about different Bible characters - especially from the Old Testament.