Couple of questions:
1) Is it worthwhile to remove a paved road to replace it with a shorter, straighter road? Eventually it would be paved too but is the half traffic for quite a time worthwhile? Only if the shorter road is half as long?
yes, absolutely. Especially when the road is in an important part of the network. A 3-step road may become a huge bottleneck in the whole transportation system in a large game. As for the disruption, it only lasts a few minutes, and all the goods are going to be delivered anyway
2) If a road has items on it or being carried along it when you remove it, are the carried or lieing items lost?
the carrier, still carrying the item, goes back to a near flag, then to a warehouse. It brings the ware. So, none of them are lost.
If you remove a flag, on the other hand, then the wares on the flag are lost.