Yes, that is because they are successfully logging in and going to the dashboard page. Then the dashboard page is seeing they are using a deleted account and sending them back to the login page. That is all correct. However in the screen shot of the "User Blocked" rule it looks like you were using the wrong session variable and that is why it wouldn't display the message.
If you have corrected it, make sure you uploaded the helper_groups_rules.php page and it should display properly... actually I just looked at your page and you are deleting all of the session variables on the top of the page, so you can't display a message based on the saved session variable there.
Try deleting lines 1-38 on the top of your login.php page. I don't think they should be necessary and they are causing the error message to not display.