But, what if there are comments on that product? Or what if someone has put it in their favourites list? Does changing the title remove those things so that the person who commented or favourited doesn't suddenly have a changed product?
Yes, very good point about comments. You are right, if product has comments, better not use that listing for posting another product.
As for the favourites... Yes, you are right too. That's something you need to consider.
However, we don't have "Favourites" feature on the site yet, and if we did, system would handle deleted products, so buyers would know what happened to their favoured products. However, that's not what affects your ranking. What affects your rankings is when people Bookmark pages or add them to "Favourites" list using browser, or when they send an email to someone with a direct link to your page and that page is gone.
Also, is it better if your product listing was gone completely from your potential buyer's list or if they landed on a similar looking product from your store? So I guess the key would be to replace existing product with the similar product e.g. one Christmas card with another Christmas card. At least, you get them in your store.